Businesses and individuals who have postponed trading in their used vehicles on new ones may be rewarded for their patience. Michigan consumers will no longer be taxed on the full sales price of new or used motor vehicles or recreational vehicles when a consumer provides a trade-in motor vehicle or recreational vehicle as part of the purchase price of a new or used motor vehicle or recreational vehicle, under a bill (SB 89) that was passed by the Michigan legislature and is expected to be signed by Governor Rick Snyder.
Senator Dave Robertson, the bill sponsor, explained that “Michigan is currently one of only six states—and the only Great Lakes state—that taxes the value of trade-ins. This unfair policy puts in-state businesses at a serious competitive disadvantage and costs Michigan consumers more in extra taxes.”
The bill provides for a phased-in exemption up to the full agreed-upon value of the trade-in vehicle. Beginning on December 15, 2013, up to $2,000 of the agreed-upon value of the trade-in motor vehicle or recreational vehicle is exempted from sales tax when used as partial payment for the purchase of a new or used motor vehicle or recreational vehicle if such agreed-upon value is separately stated in the invoice, bill of sale or similar document given to the purchaser.
Beginning January 1, 2015, and each January 1 thereafter, the amount of such exemption will be increased by $500 each year until the exemption amount equals $14,000. Once the exemption amount exceeds $14,000, there will no longer be a limit on the amount of the exemption. However, such annual increases will stop if the recently enacted Medicaid expansion legislation is repealed.
Beginning November 15, 2013, the full agreed-upon value of a titled watercraft will be exempted from sales tax when used as partial payment for the purchase of a new or used titled watercraft if such agreed-upon value is separately stated in the invoice, bill of sale or similar document given to the purchaser.
After the Michigan legislature approved the bill, Governor Snyder stated in a written statement that “[t]his plan strikes a smart, fiscally responsible balance. The amount saved would be phased-in gradually, offering families some immediate tax relief while spreading out the impact on the state budget.”
The Michigan House Fiscal Agency (Agency) determined that the bill would reduce sales tax revenue for fiscal year 2013-2014 by an estimated $24.6 million, which would decrease revenue earmarked for schools by approximately $18 million. The Agency expects that the incremental $500 increase in the maximum trade-in exemption amount will reduce sales tax revenue by an estimated additional $6 million for fiscal year 2014-2015, and that each successive incremental increase in the trade-in exemption amount will reduce the sales tax revenue by more than the prior increment due to expected increases in the purchases and prices of vehicles over time. The Agency believes that the estimated annual cost of such trade-in exemption could be between $250 million and $450 million once the exemption is fully phased-in after 24 years.
Click here to read the full text of SB 89.