State lawmakers have yet another idea to lower car-tab taxes for drivers in the Puget Sound region, shortly after voters approved a tax-slashing measure now tied up in a legal challenge.
A bill sponsored by Sen. Marko Liias, D-Lynnwood, and nearly a dozen other Democrats, would change the formula used to calculate Sound Transit car-tab taxes, offering a modest break for vehicle owners in areas of King, Snohomish and Pierce counties.
The bill, SB 6606, stops short of the broader cuts proposed by Republicans and included in state Initiative 976, the Tim Eyman-sponsored measure voters approved in November. The initiative, now on hold as it is being challenged in court, could repeal or lower Sound Transit taxes.
While voters across the state approved I-976, about 54% of those in the Sound Transit taxing district — who pay the highest car-tab taxes — rejected the measure, according to one analysis. Support for the tax cut was higher in Snohomish County and Pierce County than in the Seattle area.
“It’s time to give voters the relief they want on this market value [of vehicles] issue,” Liias said.
The proposal faces significant hurdles. Although Democrats hold majorities in both the state House and Senate, Liias’ proposal would require a two-thirds majority to pass because it would repeal parts of I-976 dealing with Sound Transit’s car-tab taxes.
And while Sound Transit’s board has indicated an openness to changing the formula, the agency has also emphasized that the Legislature should backfill any lost funding. Liias’ bill does not include funding to replace lost car-tab revenue. Liias said he is looking into ways to offset other costs for Sound Transit.
Meanwhile, lawmakers are focused on writing a state transportation budget that accounts for millions in revenue losses from I-976 if it is held up in court.
Car-tab costs have returned as a flashpoint since 2016, when voters in the Sound Transit taxing district approved a $54 billion measure to expand light-rail and bus rapid-transit service, funded in part by vehicle registration taxes.
As vehicle owners expressed outrage at higher bills, new attention was drawn to the formula Sound Transit uses to calculate those taxes. The formula, known as a valuation schedule, overvalues many vehicles compared to the commonly used Kelley Blue Book, resulting in higher taxes. Lawmakers for years debated the issue but never reached a deal.
A less inflated way of calculating the taxes is already on the books; it was approved by lawmakers in 2006 but was never used. Liias’ proposal would put most of that schedule in place now, with some changes to the cost for older vehicles in an effort to not increase taxes on those. It would also repeal some sections of I-976.
The change would save vehicle owners money by assuming a quicker depreciation of a vehicle’s value than the schedule currently in use. For example, the current schedule taxes a three-year-old vehicle as if it’s worth 89% of its suggested retail price. The new formula would assume that vehicle was worth 72% of the suggested retail price.
For certain older vehicles, the new schedule would vary slightly from the 2006 schedule in an attempt to avoid increasing taxes on those cars and trucks, Liias said.
Sound Transit spokesman Geoff Patrick said the change in Liias’ bill would reduce Sound Transit revenues by about $1 billion through 2041, with other associated costs for more expensive borrowing.
Republicans have their own tax-cutting ideas. State Sen. Steve O’Ban, of University Place, and other Republicans have sponsored bills this year to implement tax reductions included in I-976 and to nullify Sound Transit taxes in Pierce County.
Given Democratic majorities, those bills are unlikely to gain traction this year.
O’Ban called Liias’ bill a “non-starter” and predicted that a two-thirds majority, which would require some Republican support, is “not going to happen.”
I-976 attempts to cut Sound Transit taxes by instructing the agency to pay off or refinance bonds backed by car tabs, then eliminating the taxes. If the other provisions haven’t taken effect by March 31, the initiative lowers the car-tab tax rate that can be charged by Sound Transit. That change would only affect future voter-approved taxes, the state Attorney General wrote in an explanatory statement about the initiative before the election.
But Sound Transit says the initiative didn’t set a deadline for paying off its debt, so the agency has continued to collect the taxes.
At the same time, Sound Transit’s board has signaled to the Legislature the agency may be open to some changes to the way car-tab taxes are calculated.
The board voted in December to include among its lobbying priorities for this year’s Legislative session tax calculations that “implement the public’s desire to base vehicle taxes on a vehicle’s true current value, in a revenue neutral manner.”