As of July 1st, the Legislative Tag Credit changed from 6.5% to 8.75%.
The 1994 Mississippi Legislature authorized a credit to car owners in the amount of 5% of the assessed value of the motor vehicle to provide a tax break to the registered owners.
This credit eased the tax burden of the individual; however, it created a loss in revenue to the local governments. Therefore, the Legislature created a fund to reimburse the local governments for this tax loss called the Motor Vehicle Ad Valorem Tax Reduction Fund.
The revenue generated from the sales tax on motor vehicles goes into the fund. The tax loss created each month from vehicle registrations provides the figures used to reimburse the local governments.
Every year, the Department of Revenue must calculate the credit percentage based on the balance in the fund, the estimated sales tax revenue, and the estimated tax loss to the local governments for the coming year. The intent of the Legislature was to maintain a minimum balance in the fund and a maximum credit to the owners.
State Senator Scott DeLano spoke with Y’all Politics on Thursday about how due to the increase in car sales over the past year, Mississippians’ car tags will be lower.
As of July 1st, the credit changed from 6.5% to 8.75%.
“I have people who called me who were going to purchase their tags or renew their tags for automobiles and noticed that, in some cases, their renewal fees were higher in 2021 than they were in 2020,” Senator DeLano said.
“People were wanting to know why their taxes went up,” DeLano continued. “The reality of it is that the taxes did not go up, the tax credit actually went down.”
DeLano said that it is two different types of taxes that are counterbalancing each other. The State Senator of District 50 said that the Legislature uses Sales taxes collected at the sale of a vehicle to offset part of the county Ad Valorem taxes collected when a tag is bought or renewed.
“Some of the sales taxes that are collected go to off-set or provide a tax credit for people when they go in and renew their car tags. And that credit shows up on their tax bill as a legislative credit,” DeLano added.
The Coast State Senator explained that in 2021, that credit was extremely low and now the state is seeing in 2022 the tax credit that is being added back is significantly higher, thus the overall tax that people owe for renewal of their tags is significantly less than it was just a year ago.
“And that’s attributed to the rebound that we’ve seen in the automobile sales in 2021 and 2022,” DeLano said.
Senator DeLano clarified that the reimbursement that is shown in the legislative credit actually goes back to the counties. He said that the reimbursement that is provided by the Legislature helps off-set the taxes that are “lost” by the counties.
“The tax revenue that’s collected from car tags goes to county and city jurisdictions, so it’s taxes that are a benefit to them. Sales tax, a portion of that sales tax, goes to the state. The rest of it goes back to the city,” DeLano explained. “So, the state, in 1994, decided to give back the state’s portion of the sales tax to this legislative credit. And then that’s where that money comes from.”