SGA: Smart Transportation Investments in a Time of Economic Crisis

VEHICLE FEES

Vehicle License, Registration, and Title Fees

(For more general information, view the Transit Cooperative Research Program 2009 report, Local and Regional Funding Mechanisms for Public Transportation, and the U.S> PIRG 2009 report, How and Why to Fund Public Transit.)

  • States charge a variety of fees to own and operate a vehicle. License Fees are currently imposed in over 34 states. Individual drivers pay a fee the first time they are issued a license, and often must pay additional fees to have their license renewed or replaced. These fees typically vary based on license class and, in some cases, based on factors like the age of the driver in question. Fees for a new or replacement drivers license differ from state to state but typically range between $15 and $30 for drivers over the age of eighteen applying for Class C non-commercial licenses. Fee rates for commercial drivers licenses are typically higher. In MD, for example, the fee for a commercial learner’s permit is $90.
  • In many states, drivers also pay Title Fees when they register or make changes to a vehicle’s certificate of title. In most cases, these fees are imposed as flat rates, and vary by state from $8.00 per transaction in Idaho to as much as $77.25 per transaction in Florida.
  • Most states impose annual Vehicle Registration Fees. In some states, these fees are charged as flat rates per vehicle registered, while other states have variable rates based on factors such as vehicle weight, vehicle type, and vehicle age. Some examples of states using variable rates based on weight include Arkansas, Colorado, Florida, and Kansas. Idaho and Minnesota are two examples of states using variable rates based on value and age. The general idea behind this is that certain types of vehicles impose larger public costs. For example, heavier vehicles put a greater strain on roads. In Chicago, elevated registration fees are currently charged for certain models of SUVs due to their weight and to their fuel-inefficiency.
  • Annual revenues from these fees vary by state and by fee type. A couple of examples include:
  • In Montana, the state drivers license fee rate varies based on driver age but is approximately $5 per year for drivers between the ages of 21 and 67 ($20.50 for a four-year license and $40.50 for an eight-year license). For the 2008 fiscal year, revenues from the fee were estimated at approximately $5 million, most of which went to the state general fund. The rest of the revenues from 2008 were distributed between the traffic education account and the highway patrol retirement fund. (
  • California’s Motor Vehicle Account (MVA) derives the majority of its revenues from the state vehicle registration fees, including a $31 base registration fee per vehicle and a late payment penalty ranging from $10 to $100 depending on the lateness. The fee generated approximately $1.7 billion for the MVA in the 2007-2008 fiscal year, representing 81% of the MVA’s $2.1 billion in total revenues for that year. (
  • Advantages
  • These sources of funding are typically extremely stable because the demand to renew licenses and register vehicles is highly inelastic. Economic downturns generally have very little impact on the revenues from these mechanisms, and increasing the rates charged can directly raise the amount of money coming in.
  • These fees are fairly easy to administer, and the monetary costs associated with raising rates are low.
  • Using variable rates for vehicle fees can provide a way to discourage people from driving heavier, gas-guzzling cars.
  • Disadvantages
  • Currently these mechanisms are not widely used as dedicated funding sources for transit. Typically, revenues from license, title, and registration fees go toward covering the costs of administering the fees, toward transportation in general, and toward general funds.
  • Changing or increasing the rates for these types of fees usually requires legislative action.
  • These mechanisms have a somewhat limited tax base compared to other options (such as sales taxes) since only households that own vehicles pay the fees.

Vehicle Sales/Lease/Rental Taxes

  • Most states (except New Hampshire, Alaska, and Oregon) impose a sales tax on the purchase and lease of motor vehicles. Similar taxes are also levied in some states on vehicle rental, providing a way to account for the social costs imposed by rental cars including increased congestion and greater overall emission levels. Rental taxes have been especially popular in areas with a high tourist influx, such as certain regions in Florida. Taxes on the sale, rental, and lease of vehicles can be either flat rates or variable according to vehicle size, value, and age. Sales and rental taxes typically take the form of one-time charges paid at the point of purchase or rental, while lease taxes are often paid monthly as a percentage of the leasing rate. However, none of these taxes are widely used to fund transit. One exception is Allegheny County in Pennsylvania, which has enacted a $2 per day rental car fee to help fund Port Authority Transit Services in the Pittsburg region. This tax is expected to generate $5.8 million for the 2009 fiscal year.
  • Advantages
  • If variable rates for these taxes are used (based on weight, age, emission levels, etc.), the taxes can be both progressive and responsive to inflation. They can also help account for the greater social costs imposed by heavier and less fuel-efficient cars.
  • Vehicle rental fees in particular tend to be politically popular, since the population voting to enact the tax is typically made up of a different group of individuals than the population who will be paying the tax.
  • Disadvantages
  • Revenues from these taxes are subject to economic fluctuations, meaning that they can provide a somewhat unstable source of funding.
  • None of these taxes are currently widely used to fund transit.
  • For vehicle rental taxes, the people paying the taxes have essentially no voice within the local government imposing the tax.

Other Vehicle-Related Fees: Vehicle Battery and Tire Taxes

  • Some states charge an excise tax either on the sale of vehicle batteries or on the sale of tires. Excise taxes are similar to sales taxes, but are charged at a flat rate per unit purchased (for example $1 per tire purchased in Pennsylvania) rather than ad valorem, or ‘in proportion to value’ (as a percentage of price in the case of sales taxes). The reasoning behind these fees is that the disposal of old vehicle batteries and old tires is expensive and environmentally damaging. These taxes have the advantage of being forms of user fees, since individuals who drive more wear down their tires and car batteries faster than others. However, the revenue streams generated by these taxes are generally fairly small and are typically used specifically to cover the costs of disposal. Currently there are few examples of either type of tax being used to fund transit. One such example is Pennsylvania’s tire tax. All new tires purchased in PA are subject to the $1 per tire fee, and the revenues from this tax go directly in to the state’s Public Transportation Assistance Fund.

Where Have Vehicle Taxes Been Used to Fund Transit?

Motor Vehicle Excise Tax Supports Transit in Seattle

Sound Transit is an authority in the Seattle area servicing Snohomish County, North King County, South King County, East King County, and Pierce County. In addition to a retail sales tax, residents within the transit authority district also pay a “car tab tax”, or motor vehicle excise tax (MVET) administered by the Washington State Department of Licensing. The annual fee is collected at the time of vehicle licensing at a rate of 0.3% per dollar of vehicle value, or $30 for each $10,000 of vehicle value. In 2009, the MVET (along with a car rental tax) provided $74.4 million in Sound Transit revenue, covering approximately 14% of Sound Transit’s total funding for 2009. In 2010, the MVET is expected to bring in approximately $66.9 million dedicated to Sound Transit, with total Sound Transit revenues for 2010 projected to be $794.9 million and the authority’s operating and capital budget for the year estimated at $945.9 million. (For more information, view the Sound Transit 2010 Projected Budget and the MVET FAQs.)

Revenues from the MVET, as well as the retail sales and use tax, are currently being used to build and operate Sound Move, the regional transit system which voters approved in 1996. In November of 2008, voters authorized Sound Transit 2, an expansion of the system to include new projects and 100,000 annual hours of expanded Sound Transit Express bus services. The implementation of Sound Transit 2 is expected to cost approximately $17.9 billion for 2009-2023, with the new annual cost per adult resident in the transit district estimated at $69. The MVET will remain at the current .3% rate, but will be dedicated partially to funding these new projects. The tax is currently scheduled to be collected through 2008. (For more information view the section of Sound Transit’s website:

Vehicle Sales Tax Funds Transit Operations in Minnesota

Minnesota currently taxes motor vehicles at the same rate as the state general sales tax, or 6.5%. From 1993 through 2001, all of the revenues from this Motor Vehicle Sales Tax (MVST) were dedicated to the state general fund, while transit operations in Minnesota were funded primarily by the state property tax. In FY2001, the introduction of new legislature prohibited funding transit operations in the Minneapolis metropolitan area through revenue from the state property tax, so in 2003 a portion of MVST revenue was shifted to the transportation fund, partially to fill the new transit funding gap. In 2003, 20.5% of the MVST was dedicated to the Metropolitan Area Transit Fund, while 1.25% was dedicated to the Greater Minnesota Transit Fund. In November of 2006, voters approved the Transportation Amendment to the state constitution, which scheduled a gradual shift in the distribution of revenues from the tax through FY2012, at which point all of the revenues will be dedicated to transportation. The constitutional language mandates that by 2012 ‘no less than 40%’ of revenues will be put toward transit operations. The rest of the revenues will be dedicated to the HUDT fund. (For more information on the history of the tax, view the following report published in 2007 by the Fiscal Analysis Department of the Minnesota House of Representatives, as well as this timeline for the 2006 Transportation Amendment found on the Minnesota DOT website.)

Up until FY2007, revenues from the MVST were growing steadily, from $445 million annually in 1993 to $512 million in 2007. In FY 2007, approximately $114.4 million (21.5%) of the total revenues went directly toward funding transit operations. However, over the past couple years the revenue stream generated by the tax has declined substantially due to the economic downturn. For 2009, the tax is producing approximately $408.9 million, of which $113.5 million (27.75%) is dedicated to transit. Projections for 2010 estimate only $395.9 million in total revenues for the tax, with $118.7 million (30%) of that for transit. Metro-area transit agencies will have approximately $18 million less than originally predicted for 2010 and 2011, bringing the projected shortfall to $62.5 million for the two-year period. (For more information, view the following 2009 article by the Metropolitan Council.)

1