The California vehicle license
fee is an annual tax on the ownership of motor vehicles. Since 1998
the effective rate of the fee has has been incrementally reduced from two percent of a vehicle's current
estimated value to 0.65 percent, representing a 67.5 percent decline in the
rate overall. According to the Legislative Analyst's Office, the average
2000-01 automobile licence fee was $66.00, and the average saving from the rate
reductions was $138.00.
Under Proposition 47,* a
1986 state constitutional amendment (Art. 11, Sec. 15), all
vehicle license fee revenues, except those from trailer coaches, must be allocated
to cities and counties. The state has replaced the lost revenue from fee
reductions with money from the General Fund on a dollar-for-dollar basis, and
thus cities and counties have not suffered as a result of the fee reductions.
The state earmarked $3.8 billion to reimburse local governments in
2002-03.
The initial rate reduction
legislation passed in 1998 includes a provision (Revenue
and Taxation Code Sec.10754 (a)(3)(C)) that when money in the General Fund
is insufficient to "backfill" funds to cities and counties, vehicle license
fees may be raised to make up the difference. But ambiguities in the provision
made its implementation a contentious issue. There was strong dissagreement over wheather the fees could be raised administratively, or wheather legislative action was required.
On June 20, 2003 the Davis administration reinstituted the full vehicle license fee, and to date the action has withstood legal challenge. The action was a key step in the plan to close the $38 billion shortfall in the 2003-2004 budget. The increase tripled the vehicle license fee for the average car owner, and began appearing in renewal notices starting August 1. The California state budget passed in late July 2003 included the projected $4 billion in increased vehicle license fee revenue.
Proponents of the Governor's recall characterized the increase as a tax hike and used it as an issue in the recall campaign. In mid-August 2003, Davis floated a plan to reverse the increase, making up the revenue with taxes on high income earners, cigarettes, and alcoholic beverages.
When Gray Davis was recalled and Arnold Schwarzenegger was elected
governor in October 2003, Schwarzenegger vowed that his first act as
governor would be to revoke the vehicle license fee increase. On November 17,
just after his inauguration, Gov. Schwarzenegger signed
Executive Order S-1-03, rescinding the vehicle license fee retroactive to October 1, 2003 when
the fee increase went into effect. Analysts predict
that this will add more than $4 billion to the state deficit. The governor
did not indicate how cities and counties would be reimbursed for the lost
revenue they receive from the license fee to support public safety and
other local government activities.
- *Ballot arguments and the Attorney General's
official title and summary can be found in the California
Ballot Propositions Database.
- "Vehicle License Fee (VLF)." In: Chapter 1 of California's Fiscal Outlook: LAO Projections, 2003-04 through 2008-09. Sacramento: Legislative Analyst's Office, Nov. 14, 2003. [pdf version]
- "Motor Vehicle Fees." In: Chapter 3F of Revenue and Taxation Reference Book 2002. Sacramento: Assembly Revenue and Taxation Committee, Jan. 2003.
- "The
Vehicle License Fee and the 2002-03 Budget." In: The
2002-03 Budget: Perspectives and Issues. Sacramento: Legislative
Analyst's Office, 2002, p. 149-158.
- Ueda, Kara.
"Protecting a Local Revenue Source from Another State Raid,"
Western City, v. 78, no. 1 (Jan. 2002), p. 7-10.
- Urges cities to be
vigilant against a raid on vehicle license fee revenue in the current
budget crisis.
- Options
for Balancing the Budget: Reinstating The Vehicle License Fee Rate.
Sacramento: California Budget Project, 2002. 3 p. [pdf version]
- 1999
State Motor Vehicle License Tax. National
Conference of State Legislatures. Apr. 25, 2002.
- Table of dollar amounts
collected by state, per capita, per $100 income, and state rankings.
- Dill, Jennifer;
Goldman, Todd; Wachs, Martini.
"California
Vehicle License Fees: Incidence and Equity," Journal
of Transportation and Statistics, v. 2, no. 2 (Dec. 1999), p. 133-147.
- From the authors'
abstract: "After the effects of federal and state income tax deductions
are taken into account, the fee is found to be as regressive as the state's
sales tax."
- Lopez, Elias.
Vehicle
License Fee : a Comparison among the Most Populous Cities of Each State.
Sacramento: California State Library, California Research Bureau, 1998. 13
p.
- From "Highlights"
(p. 1): "In terns of vehicle license fees, there is a lot of variation
in what states charge. For a 1997 Ford Explorer, the range goes
from $1873 in Providence, Rhode Island, to $0 in Portland, Oregon. California
ranks 13th from the top, charging $488."
- "The
VLF Battle: Lessons Learned," Western City, v. 74, no.
11 (Nov. 1998), p. 10-12.
- Cohen, Michael.
A Primer on the
Vehicle License Fee. Sacramento: Legislative Analyst's
Office, 1998. 8 p. [pdf version]
- Can
California Afford the Governor's VLF Proposal?. Sacramento:
California Budget Project, 1998.
- Berthelson, Christian.
"Schwarzenegger's Vow: 'Miracle of Sacramento' Governor Keeps Pledge to Roll Back Vehicle Fee", San Francisco Chronicle, Nov. 18, 2003.
- Gledhill, Lynda, Berthelsen, Christian.
"Davis Eyes Reversing Car-Fee Rise: He Wants to Recoup Lost Income by Increasing Other Taxes, San Francisco Chronicle, Aug. 13, 2003.
- Marelius, John.
"Governor's Foes See Car Tax Hike as Fuel for Recall," San Diego Union Tribune, Aug. 3, 2003.
- Gledhill, Lynda.
"California Vehicle License Fee to Triple
Average Increase Will Be $158: Critics May Sue," San Francisco Chronicle, June 21, 2003.
- Hill, John.
"Legal Donnybrook to Follow Car-Tax Hike," Sacramento Bee, June 20, 2003, p. A3.
- Walters, Dan.
"Steinberg's Tax Swap Could Have Adverse Long-term Consequences," Sacramento Bee, Aug. 13, 2003, p. A3.
- Characterizes Assemblymember Darrell Steinberg's proposal to revoke the vhehicle license fee increase as "an expedient and crassly partisan move" to influence the recall election in the Democrats' favor.
- "Ticktock,
Ticktock: Budget Doctors Dodder While State Bleeds [editorial],"
Sacramento Bee, Dec. 15, 2002, p. F4.
- Includes a call to
restore vehicle license fees.
- Weinkopf,
Chris.
"Bill Designed to Play Fast, Loose with Law," Daily News
of Los Angeles, Dec. 8, 2002, p. V1.
- Critical of Democratic
legislative maneuver to restore vehicle license fees without a two-thirds
vote.
- Schrag,
Peter.
"The Budget: What Comes after the Bloodletting?" Sacramento
Bee, Dec. 4, 2002, p. B7.
- What comes, says
Schrag, is "restoration of the vehicle license fee, increased income tax
rates for the top earners, and a boost in the tobacco tax and the sales
tax. Good policy would include services in the sales tax--lawyers' fees,
cleaners, auto and equipment repair--without a rate increase."
- "State
Taxes: Bite the Bullet [editorial]," Los Angeles Times, Nov.
23, 2002, pt. 2, p. 24.
- "The so-called car
tax should have been restored this year to its 1999 levels, and next year
will have to be."
- "A Budget
That Buys Time [editorial]," San Francisco Chronicle, Sept.
5, 2002, p. A22.
- "A huge budget hole
calls out for a range of solutions, taxes included. But it's important
to know who will be hit by a new levy, such as the car tax felt most sharply
by low-income drivers."
- "Lay
Blame for California Budget Stalemate at Governor's Doorstep [editorial],"
Orange County Register, Aug. 21, 2002.
- "On the budget so
far, the governor has no vision except unacceptable tax increases--especially
the doubling of the car tax he proposed and the Senate passed--that would
hit middle-class families hard and further depress an ailing economy."
- Walters,
Dan.
"Local Officials Reminded That State Money Always Comes with Strings,"
Sacramento Bee, Mar. 8, 2002, p. A3.
- "Local officials
fret that with the budget deficit continuing to balloon, the car tax backfill
is a juicy target of opportunity for desperate politicians."
