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Motor Vehicle Taxes and Fees

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Overview

The motor vehicle tax and motor vehicle fee replaced the property tax levied on motor vehicles beginning Jan. 1, 1998.  Under the pre-1998 system, motor vehicles were assigned a value by the Tax Commissioner based on average sales price for vehicles of that make, age, and model, and the local property taxing units of government merely assessed the rate against that value.  Property taxes were paid by the owner at registration based on the rate assessed for the previous property tax year.

Under the current system, the motor vehicle tax and fee are still paid at the time of registration.  However, the tax paid is now uniform throughout the state and only three types of local governments share in the proceeds.  The motor vehicle tax phases out once a vehicle reaches 14 years of age, but the motor vehicle fee is levied throughout the life of the vehicle.

The tax on any particular motor vehicle is the result calculated by multiplying the base rate of tax times a factor that declines with age.  The base rate is based on manufacturer's suggested retail price in the case of passenger cars, motorcycles, pickups, vans and SUVs and the manufacturer's rated weight for commercial vehicles.  Exemptions from the tax are the same as was the case under the property tax system.  These are primarily government vehicles and those used for, religious, educational, and charitable purposes.

The motor vehicle tax is distributed to the city, county, and school system where the vehicle is registered.  The school receives 60% of the proceeds with the municipality and county dividing the rest.  If the motor vehicle is not registered within any municipality, the county receives both shares.  The motor vehicle fee is divided equally between municipalities and counties based on the formula used for distributing motor fuel taxes and other taxes that contribute to the Highway Trust Fund.

Adequacy - While our experience with the motor vehicle tax and fee system is limited, the tax appears to be stable and fast-growing.  Personal and business motor vehicles are largely a necessity in a modern society so we could expect the proceeds from the tax to vary little with the condition of the economy.  The proceeds of the tax also seem to grow faster that the economy itself as shown in the analysis below.  This is likely for the same reasons that sales tax on motor vehicles has grown so rapidly, an increase in the number of vehicles and/or an increase in average prices of motor vehicles.

Equity - The motor vehicle fee imposes a tax that decreases only slightly with the cost of a passenger vehicle and its age.  The motor vehicle tax on the other hand is based on a progressive schedule that charges an increasing percentage tax burden as the value of a new of a passenger vehicle increases.  This is because the first bracket is fairly wide ($0 - $3,999) and has only a $25 tax when new.  This is less than 1% of the value of the motor vehicle.  Subsequent brackets increase the tax $10 to $40 for each $2,000 of value when new, or two percent.  The higher the value of the passenger vehicle, the smaller the share of the vehicle that is taxed at the lowest, first-bracket rate.  This progressivity mitigates the regressive impact of the motor vehicle fee.

There is also some correlation between the taxes and fees paid and benefits received from the government levying the tax.  The motor vehicle fee flows entirely to municipalities and counties which must spend the money on streets and roads.  Forty percent of the motor vehicle tax also goes to municipalities and counties.

Simplicity - The motor vehicle tax and fee system is relatively easy to administer.  It is collected at the time of registration, along with other taxes and fees.  It is based on a uniform schedule available to all counties.  These features keep the cost of collection low.

Accountability - As mentioned previously, the fee flows entirely to municipalities and counties as does 40% of the tax.  These are the entities primarily responsible for local streets, roads and bridges.  However, 60% of the tax goes to schools where this accountability connection is not present.

Economic competitiveness - When the motor vehicle tax and fee system replaced property taxes on motor vehicles, the tax obligation was made identical in every location in the state.  This made the tax much more economically neutral.

Motor Vehicle Tax

  1. History.  The motor vehicle tax replaced the property tax levied on motor vehicles beginning January 1, 1998.  Under the pre-1998 system, motor vehicles were assigned a value by the Tax Commissioner based on average sales price for vehicles of that make, age, and model, and the local property taxing units of government merely assessed the rate against that value.  Property taxes were paid by the owner at registration based on the rate assessed for the previous property tax year.

    Under LB 271, passed in 1997 (NEB. REV. STAT. Sections 60-3001 et. seq.), the motor vehicle tax is still paid at the time of registration.  However, the tax paid is now uniform throughout the state.  The tax is derived from a table based on age and the manufacturer's rated weight of the motor vehicle, or in the case of passenger cars, manufacturers' suggested retail price.

  2. Base and rate.  The tax on any particular motor vehicle is the result calculated by multiplying the base rate of tax times a factor that declines with age.  The following table sets out the reduction schedule for the motor vehicle tax followed by a listing of the base rate of tax.

  3. Administration and Disposition.  County treasurers collect the motor vehicle tax and distribute the proceeds to cities, counties, and schools except that the county retains one percent of the taxes as an administrative charge.  Sixty percent of the proceeds from the tax are distributed to the school system at the location where the motor vehicle is registered.  Twenty-two percent goes to the county and 18 percent to the city, except for Douglas County where the city-county percentages are reversed.  In Douglas County, 18 percent is retained by the county and 22 percent distributed to the appropriate city, including Omaha.  If there is no municipality in the location where the motor vehicle is registered, the distribution is 60 percent to the school, 40 percent to the county.

Motor Vehicle Fee

  1. History.  Like the motor vehicle tax, the motor vehicle fee was the result of LB 271, passed in 1997. (NEB REV. STAT. Section 60-3007.) The motor vehicle fee was a smaller component of the combination tax and fee that replaced the property taxes on motor vehicles.  It raises approximately eight percent of what the property tax on motor vehicles generated in 1997.

  2. Base and Rate.  Like the motor vehicle tax, the motor vehicle fee starts with a base fee that is subject to an age-related reduction schedule.  The schedule has fewer levels and a lower starting point, but never becomes zero (unlike the motor vehicle tax).  The reduction schedule and base fee are contained in the table below.

  3. Administration and Disposition.  The motor vehicle fee is collected by the county treasurer at the time of registration and, less a one percent administrative fee, is returned to the state.  The state distributes the proceeds to cities and counties in equal shares and in the same proportion as the distribution to cities and counties of the motor fuels tax.  The motor vehicle fee proceeds are to be spent by cities and counties for road, street and bridge construction and maintenance and are considered local funds available to match state funds.

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