Many Nebraskans realize that our state motor vehicle taxes and fees are higher than those in adjacent states. Therefore, thousands of taxpayers save tax money by registering their vehicles in these border states. In reaction, the state revenue department in cooperation with the NE State Patrol is investigating these tax evaders and mailed letters to over 10,000, advising them to register their vehicles and pay owed vehicle taxes in Nebraska. Because of the differing databases in adjacent states, some people who now register their vehicles lawfully in Nebraska received these threatening letters and must contact the State Patrol to clear their names. This process resembles the failure of the Prohibition laws, which similarly hounded otherwise lawful citizens. Instead, state senators should reform our vehicle tax system, lowering taxes and fees to make it less enticing to title and register vehicles in adjoining states. Then, our government coffers could recoup millions in yearly sales taxes, vehicle taxes, and fees.
Nebraskans in 2006 paid a 5.5% sales tax on vehicles, compared to 5% in Iowa, 4.9% in Kansas, 4.225% in Missouri, 3% in Wyoming and South Dakota, and 2.9% in Colorado.[1] In 2006, NE vehicle annual registration fees stood at $415.50, compared to $300.38 in Wyoming, $269.50 in Colorado, $227.59 in Kansas, $204 in Iowa, $62 in South Dakota, and $54.75 in Missouri. Nebraska stood second highest nationally in total registration costs. Total registration and state and local fuel tax costs placed Nebraska 3rd in the nation.[2] Our vehicle tax has a progressive rate schedule, so price inflation has a heavier effect on tax receipts because of bracket creep. As of 2006, the state sales tax on vehicles has increased faster than our state economy and faster than other services and products covered by the sales tax. From 1998 to 2006, vehicle taxes and fees together have increased faster than inflation and our state economy. This tax burden only offers incentives for Nebraskans to register and title their vehicles in adjacent states.
THE SOLUTION. To reform our state vehicle tax system and make it more equitable to taxpayers, we must lobby our state senators to pass legislation to allow counties to levy local registration taxes. Year #1 of vehicle ownership would accrue a tax of 1.5% of manufacturer suggested retail price, 1.2% in year #2, .9% in year #3, .6% in year #4, and .3% in year #5 and thereafter, the minimum tax set at $5.
[1] A Comparison of Selected Tax Rates in the District of Columbia with those in the 50 States, Table 25.
[2] Idaho Transportation Dept., Economics & Research Section, pp.4-6.
See our NTF issue papers on costs of registering vehicles in Nebraska and our outrageous state gas tax. Email us through our website at www.netaxpayers.org.
