Taxation, License Fees, and New Car Registrations
AbstractThe structure of taxes and license fees on motor vehicles varies widely across the states. In 1997, automobile owners in 12 states and the District of Columbia paid only a fixed license fee independent of the age or value of the vehicle. But statewide license fees in 15 states declined as the value of the car declined, and fees in 6 states declined as the age of the car increased. Furthermore, local personal property taxes based on value applied to automobiles in 17 states. Taxes and license fees based on age or value raise the user cost of newer automobiles compared to older cars. Therefore, people are expected to substitute older model cars for new cars. The authors test this hypothesis by estimating a regression with the ratio of new car registrations to total registered automobiles as the dependent variable, using cross-sectional data for 1997 car registrations. The empirical results confirm their hypothesis.