JACKSON – People buying a tag for their current car or truck through June 2010 will see little change in cost from what they have paid in the past.

As part of the budget agreement passed by the Legislature and signed into law by Gov. Haley Barbour, the state will provide local governments an additional $38 million to hold down the cost of car tags through June 30, the end of the state’s fiscal year.

Without those funds, the cost of car tags throughout the state would have increased substantially – hundreds of dollars on more expensive cars in some areas.

But some legislators, including many from Northeast Mississippi, complained that the state should put more money into a fund to hold down car tag costs.

“Certainly, when we came back in special session that was my top priority – getting the car tag situation 100 percent fixed,” said Sen. Bill Stone, D-Ashland. “I am very disappointed we did not get that totally fixed.”

During a late June special legislative session that dealt with car tags and the state budget, the Mississippi House and Senate passed legislation to put additional money on top of the $38 million in the car tag reduction fund, but their action was killed by the Senate leadership.

Senate Finance Committee Chairman Dean Kirby, R-Pearl, and Senate Appropriations Committee Chairman Alan Nunnelee, R-Tupelo, argued that the $38 million was enough for car tag relief. In addition, they said, parliamentary rules during the special session prevented the Legislature from doing any more.

Kirby said that in a tough budget year, “the legislators’ purpose was not to reduce the costs of car tags, but to keep them where they were.”

In that respect, the Legislature essentially was successful.

The costs will be about the same – a little less or a little more, depending on the tax rates of local governments. But people buying new cars will pay more this fiscal year, which started July 1, than they did the previous fiscal year.

How much more depends on the local tax rates and the value of the vehicle purchase, but in some instances the difference will run in the hundreds of dollars.

Drop in sales

The reason the Legislature even dealt with the car tag issue is the poor state of the economy in general and of vehicle sales in particular.

The cost of a car tag is in large part a local property tax levied by municipal and county governments and school districts. Having heard complaints for decades about the high cost of car tags, the Legislature in 1994 took steps to provide relief.

Lawmakers voted to put a percentage of the sales tax on vehicles into a car tag reduction fund. That money would be used to reimburse local governments.

The amount that goes into the fund is based on vehicle sales – more sales, more money.

The amount of the car tag reduction is set by the state Tax Commission, which establishes a credit each year based on anticipated car sales.

That car tag credit, which was 5.5 percent last year, is multiplied by the assessed value of the vehicle. That is the amount of the car tag reduction.

For instance, last year on a car with a retail cost of $21,710, the assessed value would have been $4,125. That assessed value would have been multiplied by 5.5 percent to provide the cost of the credit – $227.

Obviously, the assessed value – as does the true value of a car – decreases each year. The older the car, the less the car tag costs. That is why the credit can go down, as it has this year, without the cost of the tags going up.

A possible flaw in the formula is that during tough economic hard times when car sales are down, the cost of car tags will rise.

The car tag credit fluctuates each year. But if the Legislature had not placed the additional $38 million in the fund, the credit would have been 3 percent – the lowest since the formula was put in place.

The additional $38 million pushed the car tag credit to 4.25 percent. The highest the tax credit has been in 6 percent as late as 2000. The lowest it has been is 4 percent in 1996.

Last year it was 5.5 percent. But car sales were much lower than anticipated last year, meaning the car tag reduction fund could not cover the costs of the credit. But the law required the shortfall to be covered by local governments and not the car-tag purchasers. The Legislature put $25 million in that fund for last year to help cover some of the revenue shortfall for local governments.

Unfair criticism

Kirby said criticism of the Legislature was unfair because all it was trying to do was to lessen the impact of falling sales on the cost of car tags.

“We did not vote to increase the cost of car tags,” he said. “We were trying to help.”

Stone agreed that what the Legislature ultimately did “is much better than the alternative.”

But he added, “It’s a perfect example of a Catch 22 situation. The car tag credit goes down because car sales go down. When that happens, people see that car tag costs go up.

“A lot of time people in Mississippi don’t buy a new car because of the cost of car tags. It (formula) drives down the sale of cars, in my opinion.”

Next spring the Tax Commission will set a new tag credit. If it the economy has improved and people are buying more cars, the credit will go up and the license plate costs will go down.

That’s the formula.

Contact Jackson Bureau reporter Bobby Harrison at (601) 353-3119 or bobby.harrison@djournal.com.

Comparison of car tag cost

A 2007 Honda Element purchased in August with a retail price of $21,710

City of Corinth in municipal school district

2008 $371.03

2009 $339.41

Alcorn County in municipal school district

2008 $254.05

2009 $247.07

City of Tupelo in municipal school district

2008 $347.64

2009 $320.95

Lee County in county school district

2008 $185.66

2009 $193.09

2009 in this instance started on July 1.

Source: State Tax Commission

Amount of car tag tax credit

Year Amount

1995 5 percent (first six months of formula)

1996 4 percent

1997 6 percent

1998 6 percent

1999 6 percent

2000 6 percent

2001 5.75 percent

2002 5.25 percent

2003 5.5 percent

2004 5 percent

2005 5 percent

2006 5 percent

2007 5 percent

2008 5.5 percent

2009 5.5 percent

2010 4.25 percent

Source: State Tax Commission