Increasing Value of Used Cars Results in Higher Tax Bill for Ky. Drivers
Written by Kenton Hornbeck, LINK Media reporter
Editor's note: The headline has been changed to say "higher tax bill" from "higher tax rate"
After tolerating pandemic burnout and nationwide economic uncertainty, northern Kentuckians are now beginning to grapple with the realization that their property taxes are on the rise due to higher vehicle valuations.
In a memorandum released on Jan. 6, the Kentucky Department of Revenue, Office of Property Valuation, estimated that vehicle valuations will increase approximately 40% during 2022 in an assessment done by J.D. Power. Although rising prices are positive for sellers, buyers will feel this spike in their wallets as rising vehicle valuations translate to higher property taxes. There was a 46.6% year-over-year increase in wholesale used car prices, according to the Manheim Index of Used Car Prices.
The memorandum says the main contributing factors for the increase are new vehicle-production and inventory constraints, elevated new vehicle transaction prices, ongoing limited supply of vehicles and an increased dealer interest in used-vehicle operations.
Ricky Pernell of Covington purchased a 2016 Subaru Crosstrek for his family. Due to the rising valuations, the property tax on his car increased.
“My tax was up pretty high and it really reduced the quality of car we could have purchased,” Pernell said. “In this matter, we had no choice. If I had the choice, I would’ve waited to see if prices and taxes leveled out after new car production gets cars back into the lots.”
While Pernell is frustrated, he also knows production shortages have sent markets into a frenzy.
“Hopefully all of this goes away in about six months when new cars come back out,” Pernell said. “The reality is the dealerships have no inventory until they get the ECM chip situation handled.”
Morgan Bay of Covington, a prospective seller, was shocked to learn his used 2018 Toyota Camry had risen significantly in value since he purchased it in 2019.
“I found out my vehicle has risen about $3,000 in value from the purchase price,” Bay said. “The last time I got an estimate was in early 2020 where Kelley Blue Book sent me a cash offer of $15,400. Now dealerships are emailing, calling and texting me about the new Kelley Blue Book offer of $19,200. They must be struggling with inventory because they’ve been relentless in their pursuit for my vehicle.”
Section 172 of the Kentucky Constitution requires all property to be listed at a fair cash value, estimated at the price it would bring at a voluntary sale.
“Valuations are dependent on supply and demand, inflation and market fluctuations,” said Campbell County Clerk Jim Luersen. “Valuations are completely determined at the state level and we have no say in determining the vehicle values at the county level.”
Kenton County Clerk Gabrielle Summe echoed this sentiment.
The increases in used car prices are closely correlated with the strain on the new car market. Due to a worldwide shortage of microchips, which are necessary to operate many electrical components of a vehicle, there has been an overall slowdown in production. This means there is a bottleneck on the amount of new cars sold.
Dealerships then mark up their cars causing many consumers to seek out cars in the used car market. The decrease in inventory and rise in demand has resulted in the unusual used car market consumers are experiencing today.
“The typical dealership experience that consumers are familiar with — walking dealer lots with rows and rows of cars, negotiating over price and getting many incentives — is not likely to return this year because there are 4.5 [million] to 5 million consumers on the sidelines waiting for cars,” said Tyson Jominy, head of data and analytics for J.D. Power, in an interview with CNBC. “This pent-up demand will keep inventories low and prices high throughout most of 2022.”
Public discourse regarding the rising motor vehicle valuations has been overall negative with many citizens taking to social media to voice their concerns.
Gov. Andy Beshear pushed back against criticism directed at his administration by clarifying his administration isn’t increasing car tax rates, nor can the executive branch.
96th District Rep. Patrick Flannery (R) filed House Bill 6, new legislation aimed at combating rising motor vehicle tax rates. His measure would prohibit the use of “rough trade-in” or “clean trade-in” values for vehicle valuation. His bill would retroactively apply to motor vehicles assessed on January 1, 2022. Refunds will be permitted for overpayments made in 2022.
Last January, Flannery sponsored House Bill 274 which proposed prohibiting the use of the rough trade-in value or the clean trade-in value prescribed by the valuation manual for valuing motor vehicles for property tax purposes, unless information is available that permits deviation from the standard value. However, no action has been taken on the bill since Jan. 13, 2021, the day it was originally introduced in the Kentucky House of Representatives.
“I saw this coming. The first bill that I ever filed as legislator last year aimed to prevent this tax hike,” Flannery said in a Kentucky House Republican Caucus press release.
In recent days, there has been a burgeoning effort across the state legislature to tackle the issue.