Letter: SUV, truck owners can expect tax increase
When Mathews County residents receive their 2010 personal property tax bills in a few days, they may notice a difference in the evaluation of vehicles when compared to last year. The following information is provided to offer some explanation regarding the change in the truck, SUV and CUV values from last year. It is my intent to help answer questions and clarify the reasons for the change in value this year.
We are living in unprecedented times, and in recent memory, the market volatility has not been as severe as in the past two years. Normally, vehicle values tend to depreciate from month to month. Intuitively, in January 2010, we expected the value of any vehicle to be lower than the value of that same vehicle the previous January.
While that is the case for a number of vehicle segments, the segments that include SUVs, light-duty trucks, minivans and the smaller CUVs, are clearly the exception. All major vehicle valuation services, not just National Automobile Dealers Association (NADA), indicated increased market values for SUVs and light trucks between January 2009 and January 2010. In these segments nationwide, several key market events, beginning as far back as mid 2008 played a part in the values established in January 2010. The following is a summary as to why these values are different from expectations.
Key market events affecting certain vehicle values over the past 18 months:
—Price of gasoline.
—Fall, then rapid rise in consumer demand for SUVs and light trucks.
—The "Cash for Clunkers" program.
The most significant issue is the cost of gas. In early 2008, vehicle values were trending as the industry normally expected. Then, in May, June and July of that year, gas prices increased dramatically. The national average for a gallon of regular gasoline peaked in July 2008 at just over $4.50. The market response was dramatic. Consumers sold unprecedented numbers of SUVs and trucks. By late 2008, the situation was so bad that some dealers were reluctant to take the large vehicles in trade. At the end of 2008, SUV and truck values were at a low point. In fact, January 2009 values were significantly lower than if traditional trending had occurred. If you owned one of these vehicles in 2009, it is likely that the assessed value as of January 1 was in many cases as much as 30 percent to 40 percent lower than 2008.
In 2009 another major change occurred. The cost of a gallon of regular gas dropped to below $2 in mid January 2009 and persisted. The huge drop in gas prices led consumers to return to the SUV and light truck market in all-time record numbers. As gas prices gradually rose throughout 2009 to an average of $2.85+, consumer demand has remained strong. Strong demand generally means higher prices.
What about supply? In July and August of 2009, the "Cash for Clunkers" program, designed to encourage new vehicle sales, was successful in removing nearly 680,000 vehicles from the road with nearly 85 percent of those vehicles falling into the SUV and light truck segments. The rules of that program required that those vehicles be destroyed and not returned to the used market. This further increased demand as the used vehicle supply diminished. As with many of the economic changes that have occurred in the past two years, no one predicted, nor could have predicted, the rapid fluctuations in the cost of gas, nor in the fall and then significant rise in demand, along with the drop in supply of SUVs and trucks.
Since the assessed value of vehicles is required by law to be established on Tax Day (Jan. 1), the values of these vehicles represent the market at that moment in time, resulting in an increase in market value from the previous year, in some cases as much as 17 percent.
The Code of Virginia requires that a recognized pricing guide be used and as such almost all localities in Virginia use NADA as the recognized pricing guide for the valuation of vehicles. NADA reports three major values: retail, trade-in and loan. In Mathews County, we use the trade-in value, one of the lower values in the guide, to represent effectively the fair market value of an average trade-in. We also make high mileage adjustments for later model vehicles with excessive mileage, 100,000 miles and above, as detailed on the Personal Property Declaration provided to all taxpayers each year, if the mileage is reported prior to May 1.
The Personal Property Tax Relief Act of 1998 was an attempt for the state to pay the tax on the first $20,000 of the evaluation of qualifying vehicles. Initially, the tax relief was designed to be phased in over a number of years until 100 percent tax relief was obtained. This never occurred. In 2005, the amount of tax relief for each locality was frozen. The amount that Mathews County gets each year is $1,000,083. This amount is divided among the qualifying vehicles. As the base value of all vehicles increases, the percentage of tax relief decreases. This year, the amount of tax relief for each qualifying vehicle will be 34 percent.
While these factors are beyond the control or influence of my office, the Treasurer’s office or the Board of Supervisors, please keep in mind that we are trying to accommodate you, the citizens, as much as we can. I hope this gives you some clarity to this situation and answers some of your questions. Please do not hesitate to contact me or my staff at your convenience. We are always willing to listen and assist you as much as we possibly can.
Raymond A. Hunley
Commissioner of the Revenue