Chamber-Backed Sales Tax Break on Auto Purchases Accelerated

January 21, 2018

With unanimous support in the State Senate and more than the 2/3 support needed in the State House, the State Legislature last week voted to override the Governor’s veto of two bills (SB 94 and SB 95) that speed up a phase in of a previously passed law that lowers the sales tax liability of consumers who trade in their old vehicle for a new one. The Michigan Chamber applauds this bold action.

Michigan was one of just six states that required sales tax to be applied to the entire price of a new vehicle, even if a old vehicle was traded in and its value was used to lower the final purchase price of the new vehicle. The issue that is commonly referred to as “sales tax on the difference” was rectified a few years back with legislation that was to be phased in over a 25-year period. Legislation the Governor had vetoed accelerated that phase in by about 10 years.

Under the proposed legislation, by 2029, previously 2039, new car purchasers will be able to deduct the value of a trade-in from the final purchase price of a new vehicle for sales tax purposes. For example, a $30,000 car would be taxed at $25,000 after a vehicle with a trade-in value of $5,000 was included in the purchase. With a 6% sales tax, the savings is significant and could lead to the purchase of more expensive vehicles, shortened financing times, or simply more money kept in the hands of consumers. 

The vote to override the Governor’s veto is the first of its kind since 2002 and just the fourth in Michigan's modern history.

For more information on this issue please contact Dan Papineau at dpapineau@michamber.com.