California – Pleasanton State Senator Jerry McNerney has put forward a bill that he claims might discreetly put millions of dollars back in the hands of California taxpayers.
Senate Bill 1275 wants to lower the amount of federal taxes that Californians who buy cars have to pay. It does this without boosting expenses for consumers or cutting into state or local revenue.
The law would take away the part of the sales tax that goes to the state’s general fund and replace it with a car license charge of the same amount. The overall amount paid at the time of purchase would stay the same, but the structure would change in a way that makes it possible to get a federal tax deduction.
Currently, when someone in California buys a new or used car, they pay sales tax. Instead, the state-level sales tax part would be changed to a car license fee that is the same amount of money. Federal law considers vehicle license fees to be property taxes, therefore taxpayers who itemize on their federal returns may be able to deduct them.
In real life, if a buyer pays $2,000 in state sales tax on a car, the money would be used to pay for the car’s license. The money would still go to the state’s general fund, exactly like it does now. Cities and counties would still be able to charge local sales taxes. The main difference is how federal taxes are handled: taxpayers who qualify may be able to lower their taxable income at the federal level.
As the head of the Senate Revenue and Taxation Committee, McNerney called the bill a clever way to deal with California’s long-standing “donor state” status. He said that people in California send more money to Washington every year than they get back. The state should look into legal measures to ease the load because federal budget cuts in recent years are likely to make the discrepancy worse.
Estimates say that SB 1275 might save Californians up to $250 million a year in taxes they have to pay to the federal government. The idea doesn’t raise the cost of cars, lower state income, or put additional restrictions on car dealers.
Supporters also say that the adjustment could help car sales a little by giving customers an extra federal tax break. In the next several weeks, a Senate committee will look at the bill.