Chesterfield made more than 14,000 older vehicles fully exempt from personal property taxes this year.
Under normal circumstances, most vehicles depreciate over time. But the same market forces that are driving up the cost of residential property also have sent the value of used cars and passenger trucks soaring since the onset of the COVID-19 pandemic.
COVID-related supply chain issues have severely hampered the production of new vehicles and shrunk available inventories. That, in turn, is fueling demand for used vehicles and causing significant price increases.
It’s in no way a uniquely Chesterfield phenomenon; rather, it’s playing out similarly across the region, state and nation.
Chesterfield’s leaders saw it coming, however, and took steps to soften the blow for county residents in advance of the issuance of 2022 personal property tax bills, which are due to be paid by June 6. (The county announced on May 16 that it is granting a grace period for paying personal property taxes without penalty or interest through July 29).
Personal property taxes are one of a select few revenue sources the General Assembly has made available to local governments in Virginia. Revenue from personal property assessments goes into Chesterfield’s general fund and helps pay for the public services -- such as schools, police, fire, parks and libraries – that are consistently identified as priorities by county residents.
Under Article 10, Section 2 of the Virginia Constitution, commissioners of the revenue must assess all tangible personal property at fair market value.
The Code of Virginia compels commissioners of the revenue to use a “recognized pricing guide” to determine the value of used vehicles; all Virginia commissioners currently use the J.D. Power Used Car Guide for the Eastern Region.
Mindful of the looming impact of rising assessments on thousands of Chesterfield vehicle owners, the Board of Supervisors raised the threshold at which vehicles qualify for total personal property tax exemption this year from $1,000 to $1,500.
The increase, Chesterfield’s first in nearly a quarter-century, means that an additional 14,300 vehicles registered in the county now are no longer subject to personal property taxes.
The board also cut Chesterfield’s annual vehicle registration fee from $40 to $20 this year, providing about $7 million in tax relief.
By far the most impactful element of Chesterfield’s 2022 personal property tax relief measures, though, was increasing the relief threshold to 55% for all vehicles registered in the county. (That means personal property tax is waived for the first 55% of a vehicle’s assessed value, up to $20,000).
In 1998, the General Assembly approved then-Gov. Jim Gilmore’s proposal to cut the car tax by 70%, up to $20,000 of assessed value. But state reimbursements to Virginia localities to offset the revenue impact of that legislation haven’t kept pace with growth over the years, causing a gradual erosion of tax relief for vehicle owners.
The amount coming from the state has been fixed at $41 million since 2005.
Chesterfield’s population has increased by about 78,000 residents during that time, the majority of whom own vehicles.
While people typically didn’t notice the loss of car tax relief because their vehicles depreciated annually, they’re now seeing assessments on the same vehicles go up significantly and that’s causing confusion and frustration.
This year, state funding would’ve been sufficient to provide only 39% car tax relief for Chesterfield’s vehicle owners. By pushing that threshold to 55%, the county is foregoing collection of an additional $15 million in local revenue.
According to an analysis by the Chesterfield Commissioner of the Revenue’s Office, assessment increases on vehicles registered in the county were projected to generate about $22 million in incremental personal property tax revenue in 2022.
As a result of the county’s multiple tax relief measures, it has returned all of that revenue to vehicle owners through their property tax bills.
Such actions are responsive to the uniquely challenging market conditions for used vehicles.
It’s also a one-time solution that provides the Board of Supervisors with maximum policy-making flexibility; the car tax relief threshold can be re-evaluated in future years if global supply chain issues are resolved, the supply of new vehicles increases and the market for used vehicles returns to normal.