LANSING – The state Senate recently approved legislation that would help spur vehicle and watercraft sales by reducing the cost of purchasing a new or used vehicle or boat in Michigan, said Sen. John Proos.
“I strongly supported these reforms because they will help consumers save money and help Southwest Michigan auto and boat dealers compete with out-of-state sellers,” said Proos, R-St. Joseph. “Michigan is one of only six states – and the only Great Lakes state – that taxes the value of a vehicle being traded in during a purchase. This puts our local, in-state businesses at a competitive disadvantage and costs a Michigan consumer more in extra taxes.”
When an individual today buys a new or used automobile or watercraft in Michigan, the state’s six percent sales tax is applied to the full sales price, even if the sale included a trade-in.
“Michigan consumers are essentially being double taxed when they purchase a new watercraft with a trade-in,” said Bob Myers of Pier 1000 Marina in Benton Harbor. “This legislation would help the Southwest Michigan boating industry compete with retailers from across the border, which is a major concern for a company like ours.”
Under Senate Bills 126 and 127, the sales or use tax would be applied only to the difference between the price of a new car or boat and the value of a trade-in. The relief would phase in over six years, starting with a $2,500 exemption in 2012. The amount would increase by $2,500 each year until reaching $15,000 in 2017. After that, the trade-in value is uncapped.
“The current law is a clear illustration of how bad tax policy can negatively impact job providers and consumers,” Proos said. “As a border community, our region understands that leveling the playing field with competition in neighboring states will help boost sales and create jobs in Southwest Michigan. Making this smart reform could help our local economy while also saving consumers millions of dollars.”
For example, once fully implemented, if a 5-year-old car valued at $5,000 is traded in and the car’s owner applies the trade-in value toward the purchase of a $25,000 car, the sales tax would only be applied to the $20,000 difference.
The measures, known as the “sales tax on the difference” bills, have been praised by dealers who sell cars, trucks and watercraft. The legislation has been sent to the House for consideration.
Editor’s Note – Audio comments by Sen. Proos are available on the senator’s webpage at www.SenatorJohnProos.com. Click on “Podcasts.”