Price of renewing automobile tags in Alabama went up (taxes). This is why


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As Montgomery residents renew their vehicle tags this year, they are noticing an increase in the amount they’re paying in taxes on their vehicle’s market value, even on cars and trucks they’ve owned for years. 

For some, the increase is up to 20% more than they paid in 2021.

State officials in Alabama blame the increase in tag costs on the COVID-19 pandemic and its resulting supply chain issues that have sent the “fair and reasonable market value” of vehicles, typically among the most depreciating large purchases consumers make, soaring. 

“There are two parts to the tag. One’s a flat fee, and then the other is based on the value for property tax. Just like if your house goes up in value, then your property tax goes up, so that’s the component you’re talking about,” said Tom Dart, president of the Automobile Dealers Association of Alabama. 

The flat fee for a standard Alabama license plate is $23 plus a $1.25 issue fee. The tax is where people are seeing an increase. 

Known as an “ad valorem” tax, this annual cost hinges on the fair and reasonable market value of a vehicle as of Oct. 1 of the previous year. COVID outbreaks in manufacturing plants and the global shortage of microchips needed to assemble new cars has led to two million fewer cars being produced in 2021 than were produced in 2019, according to Kelley Blue Book. 

As fewer new cars entered the market, the increased demand for vehicles drove up the prices of everything available. 

“I’ve been doing this for almost 40 years, and there’s never been a time like this,” Dart said. “With used cars, they always depreciate in value over time, and in the last year or two, that’s not happening.”

State, not county, controls this tax

The unexpected increase comes as families contend with historic inflation. In some parts of the country, lawmakers have responded to outrage over vehicle tax increases by freezing values and rewriting how vehicles are valued. 

The notable tax surges have prompted complaints at the county probate courts, the institutions that collect tag renewal revenue.

“We get the calls from residents that have concerns about why the taxes on their vehicles have gone up,” Montgomery County Probate Court Judge JC Love said. “We feel your concern, and we’re monitoring the situation, and we wish there was something we could do, but we can’t, because we just collect the money.”

Love has been especially frustrated by the situation because his court does not set the assessment value upon which vehicles are taxed. That happens at the state level.

How value is assessed and appealed

The Alabama Department of Revenue provides assessed values of private passenger vehicles — not including motorcycles — to the counties for tax collection by multiplying 15% of the fair market value by the applicable millage rate. 

Unlike real property, personal property must be reassessed in value each year. Love said this occurs automatically through a database that the state uses. The state defines fair market value as “the estimated price at which the property would bring at a fair voluntary sale.” 

“It’s just based on what they sell for. It’s not an artificial number. This is what these vehicles are selling for,” Dart said.

When asked about the tax increase and process for assessment, the department directed the Advertiser to its website page that denotes the above calculations. 

Should a resident believe that the state priced his or her vehicle at an unfair or incorrect value, that resident may file an appeal, providing supporting evidence to show just cause as to why their value should be adjusted. To do this, you can mail a request to the Montgomery County Board of Equalization at P.O. Box 1667, Montgomery, AL 36102-1667, email the Montgomery County Appraisal Department at [email protected], or call the appraisal department’s personal property line at (334) 832-1375. 

Potential for future increases

In 2020, Montgomery County residents voted to approve a property tax increase with the hopes of better funding Montgomery Public Schools. This increased the millage rate from the state mandated minimum of 10 mills up to 22 mills, but it does not go into effect until 2023. 

So if the supply of vehicles doesn’t catch up with demand, car tag renewal in Montgomery could increase even more next year. 

“That’s something that voters did approve, but I think you’re also looking at the fact that we’re dealing with nationwide inflation,” Love said. “As the cost of ad valorem tax on vehicles is going up, so is the price of milk and eggs. That’s creating concerns everywhere for everyone.”

Annual inflation reached a new 40-year high of 8.6% in March, prompting the Federal Reserve last week to raise its key short-term interest rate by a half percentage point.

The Fed’s move is expected to set off a domino effect through the economy, pushing up rates for credit cards, home equity lines of credit and adjustable-rate mortgages, among other loans. At the same time, Americans, particularly seniors, should start to benefit from higher bank savings rates after years of negligible returns.

The new car shortage, increasing used car values and higher tax assessments for vehicles are issues happening across the country right now, and each state is handling them in a different way. 

While Alabama has not yet made any move to change the way it is evaluating assessed value during this turbulent market, other states have. 

Other states’ solutions

Last month, Kentucky Gov. Andy Beshear signed into law a bill that freezes vehicle tax rates at their January 2021 assessment levels. The relief for Kentucky residents from overall rising costs is set to remain in place through 2023. 

Meanwhile, in Virginia, vehicle value assessments take place at the county level, so certain counties are able to address the increased taxes for residents. Fairfax County, for example, approved a 15% tax relief for personal property taxes last week. 

“The pandemic caused an unprecedented spike in vehicle assessments, and it was imperative that we provide personal property tax relief to our residents,” Fairfax County Board of Supervisors Chairman Jeffrey McKay said in a press release. 

In Alabama, this kind of relief would need to come from the state legislature, which is not currently in session. Legislators can be emailed via their profiles found on the state Legislature site. 

Until any of these factors change, the upped taxes will remain in place. 

USA Today contributed to this report.

Hadley Hitson covers the rural South for the Montgomery Advertiser and Report for America. She can be reached at [email protected].