OKLAHOMA CITY — Two Oklahoma House lawmakers are considering drafting legislation that could reduce taxes after vehicle purchases.
Rep. Jim Grego, R-Wilburton, earlier this month led an interim study examining criteria used by the state of Oklahoma to determine the retail value of vehicles for tax purposes.
“This issue was brought to my attention by one of my constituents and a neighbor of mine,” Grego said. “He bought a truck, and there was fluctuation between what he paid and what the value of the vehicle was determined to be. So, my goal is to look at this issue and see if we can make some changes in the system to make this more fair for consumers who purchase vehicles.”
Grego asked Wilburton resident and farmer Joe Mack McAlester to explain his vehicle purchase experience to the House Appropriations and Budget General Government Subcommittee.
McAlester said he bought a used truck at an auction for a price far less than the listed Blue Book value. He planned to use the vehicle on his farm, so he wasn’t concerned that it wasn’t in perfect condition. When he went to get his tag and title, however, he said he was surprised to see he was charged excise tax based on the full book value of the vehicle without consideration for the vehicle’s condition. He said he should be charged based on what he paid, the same as how sales tax is calculated on other purchases, instead of the higher value.
Rep. Mike Dobrinski, R-Okeene, is a former automobile dealership owner. He said he’s willing to help Grego create legislation that could help Oklahoma vehicle buyers pay less tax.
Dobrinski said the current process can present issues, particularly for used car buyers. He said in some cases, not only are buyers “soaked” with additional taxes, they might have purchased a car that issues and needs reconditioning, and that’s unfair.
Edgar Medina, vice president of lending at Tinker Federal Credit Union, spoke about the financing process. He said dealers used a risk-based pricing model. An application decision is based on a credit score through Experian, TransUnion or Equifax, as well as repayment history and debt-to-income affordability. Higher credit scores translate to less risk for financiers.
Once a loan is approved, Medina said they will set out terms of disclosure for their member or applicant before beginning collateral determination.
“If it’s a new model for either RV, watercraft, new vehicles, we will go off the MSRP or sticker price of that unit. If it is a used vehicle, we will go off of our JD Power Partnership, which is also (National Automobile Dealers Association),” Medina said.
Medina said the next step is to set loan-to-value thresholds on the front end based on the credit-scoring model. This includes the tag, title and excise tax.
“When they’ve negotiated their price, if there’s enough loan to value left in there, when it comes to excise tax, our members, our applicants, are able to either finance that excise tax into the loan to value, or they can pay for it as a cash out if they choose to at that point,” Medina said. “And so with the shift from negotiated price to taxable value, that’s where we’ve seen it could pose certain disadvantages just based on the amount of front end carry that’s afforded to the member at that point, if we’re determining a value based on either taxable value or the negotiated price.”
According to the Oklahoma Policy Institute, the excise tax is 3.25% of the value of a new vehicle. For used vehicles, the excise tax is $20 on the first $1,500 and 3.25% after that. The value of a vehicle is its actual sales price.
Jay Doyle, Chief Executive Officer of Service Oklahoma, spoke about how the state values vehicles as it relates to sales tax. He said the state began assessing sales tax on vehicles in 2018, and it uses JD Power/NADA to determine the average retail price of the vehicle.
“I don’t like the current system. I was not a proponent when it came out,” Dobrinski said. “I’ve had a good friend that’s a tag agent of 40 years, and when he explained to me how he was going to be forced to start charging some fees for some lower end used car sales, I wasn’t happy about that several years ago, but that was in my life before the legislature. We do have an opportunity to do something about that now.”
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