Vehicle license tax changes approved by Arizona Senate

The state Capitol building in Phoenix is pictured. (Photo by Visitor7, cc-by-sa-3.0,

The state Capitol building in Phoenix is pictured. (Photo by Visitor7, cc-by-sa-3.0,

PHOENIX – Got a good deal on that new car?

Arizona lawmakers are moving to give you a break on the tax you pay, not just when you first get the vehicle but every year you own it.

Without dissent, the state Senate on Thursday gave preliminary approval to changing the formula used by the Department of Transportation in computing the annual vehicle license tax.

Right now, the tax is $2.80 for every $100 of value.

But here’s the thing: It’s based on 60% of the manufacturer’s suggested retail price. So it doesn’t matter how good a deal you got.

And, based on a study by Cox Automotive, there is a history of car buyers getting deals.

That organization found that in 2019 the average sales price for all vehicles sold nationwide was $30,858. More to the point, Cox found that was about 5.7% below the MSRP.

Sen. Michelle Ugenti-Rita, R-Scottsdale, said that makes the state’s use of the MSRP unfair.

“For decades, taxpayers have been getting screwed,’’ she told Capitol Media Services.

“They have been paying tax on a fictitious, made-up, higher than what they paid for the car,’’ Ugenti-Rita said. “And it’s an inflated, bloated number.’’

So on Thursday she got the Senate to give preliminary approval for her SB 1148. It spells out that ADOT has to compute the levy based on what you actually paid.

The difference can be significant.

Consider a Toyota 4-Runner with an MSRP of $38,520. Using the current ADOT formula, that translates out to a first-year vehicle license tax of $647.14.

But if you managed to haggle a $30,000 price tag, under SB 1148 that knocks that first-year fee down to $504.

And the savings don’t stop.

The vehicle license tax in subsequent years also is based on that MSRP, reduced each year by 16.25%.

So, using the same example of that 4-Runner, existing law puts the second-year VLT at $541.98. But for the sharp negotiator, the fee under SB 1148 would be $435.67.

That annual calculation is repeated year after year, with that savings difference continuing as long as you own that car or truck.

But that raises a question: What happens when people have to pay more than the MSRP to get the vehicle they want?

That’s not idle speculation.

Edmunds reports that the shortage of key components, such as the computer chips now prevalent everywhere in cars and trucks, is limiting supply. That, in turn, is allowing some dealerships to actually demand more than that sticker price.

And in a lot of cases.

That Edmunds report found that a whopping 82.2% of all new vehicle purchases nationwide in January were above MSRP, compared with just 2.8% a year earlier and 0.3% at the same time in 2020

At the top of that list was Cadillac which had an average markup of $4,048, followed by Land Rover at $2,655 and Kia where buyers paid an average of $2,289 over the sticker.

So, to deal with that, Ugenti-Rita tacked on an amendment when the measure came up for debate on Thursday. Her measure now says the tax is based on the actual sales price or the MSRP, “whichever is less.’’

“This makes it either/or which protects in a situation like right now where there’s more instances of people paying more, above MSRP,’’ she said. But Ugenti-Rita said she believes that’s just a temporary situation.

“When the economy hopefully settles out and corrects, and people get back to haggling for car prices and pay much less than the inflated amount, their tax will be based off of what they actually paid,’’ she said. “And that’s fair.’’

There is a cost to all this to the state, and not just in the reduced VLT collection.

Right now ADOT uses a service that provides info on each vehicle’s MSRP. Legislative budget staffers said changing the system to the actual sales price would now require the agency to get information on each individual transaction before assessing the fee.

That legislative staff report said ADOT has estimated a one-time $100,000 cost to do the necessary programming, plus annual administrative costs of about $687,000.

The measure needs a final roll-call vote before going to the House.

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