Connecticut has long debated whether it should repeal its motor vehicle tax. Motor vehicle taxes are determined by the mill rates of individual towns and municipalities, which vary depending on each municipality’s taxable grand list. This typically results in disparities amongst towns and cities.  However, together, municipalities collect approximately $1.047 billion in motor vehicle taxes on more than 3 million cars and trucks in Connecticut. This revenue is relied upon by the municipalities and the legislature has not come up with a viable solution for options to replace the lost revenue if the motor vehicle tax is repealed. 

In 2023, a task force was established by the General Assembly to analyze the feasibility of repealing the motor vehicle property tax and propose options for replacing the resulting lost municipal revenue. The task force considered various approaches to replace the revenue municipalities collect from these taxes including: (1) issuing speeding tickets, particularly in school zones; (2) increasing the real property tax assessment ratio; (3) diverting federal tax savings resulting from a state payroll tax; (4) engaging insurance companies to contribute a percentage of their profits or levying a per-policy fee; (5) a per-gallon gas tax, potentially applicable only to less fuel-efficient vehicles (e.g., those with returns below 30 miles per gallon); and (6) reducing, rather than eliminating, the motor vehicle property tax.

In February 2024, the task force recommended to the legislature two policy options for eliminating the motor vehicle taxes. First, it recommended eliminating the property tax on motor vehicles and suggested allowing municipalities to set their own assessment ratio for real property (i.e., land and buildings). Second, it suggested eliminating the motor vehicle tax on non-commercial vehicles only. 

In March 2024, Senate Bill 450 was introduced, which proposed to phase out Connecticut’s motor vehicle tax by 2028. Interestingly, the bill did not follow the specifics of either of the two options recommended by the task force. Instead, the bill proposed to phase out the motor vehicle tax over five years beginning with an exemption for the first $5,000 of the vehicle’s value in the first year and culminating with a full exemption in 2028.  To replace the lost revenue, municipalities would collect more taxes from real property. Currently, municipalities collect tax on 70% of the value of personal residences and businesses. The bill would have raised the percentage to 90% over five years. 

Because the Connecticut General Assembly’s short legislative session is ending on May 8th, it seemed unlikely that the bill would gain traction and on April 3, 2024, the Finance, Revenue and Bonding Committee confirmed our assumption and killed the bill. 

This does not mean the end for discussions about how to repeal or modify the motor vehicle tax in Connecticut. We could see additional discussions about the task force findings during the next legislative session. We will update you on CTTaxAlert.com as warranted.