Connecticut's unpopular local tax on cars poised for changes in 2016 after years of debate

For decades, state lawmakers have tried unsuccessfully to eliminate or at least fix Connecticut's unpopular local car tax, criticized as unfair because the same vehicle can be taxed at wildly different rates depending on where the owner lives.

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There's now hope that a provision in the two-year, $40.3 billion state budget awaiting Gov. Dannel P. Malloy's signature could finally lower annual tax bills on motor vehicles — at least for a portion of Connecticut's cities and towns beginning in the fiscal year that starts on July 1, 2016. The planned cap on motor vehicle taxes is part of a multipronged proposal to address the overall high property tax onus across the state.

"This will ease the burdens on some people's motor vehicles and it will give each municipality more money," Middletown Mayor Dan Drew predicted.

There is skepticism, however, about the potential impact of the legislation and whether lawmakers will ultimately keep their promise to fund it.

"My constituents would see very little relief from this proposal," said Rep. Christopher Davis, R-Ellington, the ranking House Republican on the General Assembly's Finance Revenue and Bonding Committee. His district includes Ellington and East Windsor, which have local property tax rates that currently hover around the planned cap.

"Every budget is a new budget for the legislature," Davis said. "Certainly a system like this could be beneficial to towns with higher mill rates now, but who's to say that money is going to be available (in the future)."

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One mill is equal to $1 for every $1,000 of assessed property.

The proposal would limit each city or town's mill rate on motor vehicles to 32 mills in fiscal year 2017 and 29.36 mills in fiscal year 2018. If those rates were applied today, car tax rates would drop in 32 of Connecticut's 169 municipalities in the first year, the General Assembly's Office of Fiscal Analysis determined. In the following fiscal year, 57 municipalities would be affected.

To make up the revenue loss for communities affected by the tax cap, the plan dedicates a half of 1 percent of the 6.36 percent sales tax for municipal aid. In addition to funding the car tax cap, that revenue would also be used to provide some communities more reimbursement for certain untaxable property and to provide direct grants, which would be subjected to a new municipal spending cap.

Taxpayers for years have complained about the local property tax on cars in Connecticut. Because the levy is set by cities and towns, there are wide disparities between the rates. Senate President Martin Looney, D-New Haven, recently gave the example of how a car assessed at $10,000 could lead to a $388.80 tax bill in New Haven, $223.60 in Guilford, $103.90 in Greenwich and $742.90 in Hartford. Besides often imposing a higher rate on people living in poorer communities, Looney said, the tax system has led to widespread tax evasion.

After years of failed ideas, ranging from elimination of the tax to imposing a single statewide rate, Looney said this year's version was crafted to ensure municipalities would remain financially whole.

"We had the right combination of people who are in positions to advance this," said Looney, referring to House Speaker Brendan Sharkey and other Democratic legislative leaders who backed the proposal.

And while Looney said those lawmakers are committed to keeping the program in the budget, it could face changes in the upcoming special session when the Democrat-controlled General Assembly takes up some budget-related bills. Malloy, a Democrat, wants to roll back $224 million in tax increases on businesses. To make up that revenue, he's asked for additional budget-cutting authority and has not ruled out paring municipal aid.

Also, the Connecticut Conference of Municipalities wants lawmakers to make changes to the package of property tax reforms, including some clarifications to the property tax cap on motor vehicles.

Legislators are expected to return to the Capitol, possibly on June 29 and 30, to vote on the budget-related bills and other unfinished legislation.