On Wednesday, the House Tax Policy Committee passed legislation that would allow Michigan residents to pay a lower sales tax when trading in a car. The Committee also passed two similar bills (Senate Bills 89 and 90) that were previously approved by the state Senate.

House Bill 4234, introduced by Rep. Andrea LaFontaine (R- Columbus Twp.), stipulates that the sales tax would only be charged on the difference between the price of a new or used motor vehicle, recreational vehicle, or titled watercraft and the agreed-upon trade-in value.  A trade-in allowance would be phased in over six years for the purchase of cars, whereas, the Senate-version provides for a 10-year phase-in period. Currently, Michigan residents who buy a new or used car pay sales tax on the full price without a credit when they trade in a vehicle.

Representatives from the Michigan Department of Treasury testified on Wednesday that the estimated revenue loss in 2013 would be $134 million. Of that amount, approximately $36 million would affect revenue sharing payments to local governments and $98 million would impact the School Aid fund.

Meanwhile, supporters of the bills argued that Michigan auto dealers are losing business to other states that assess taxes on the difference between the price and the trade-in value.

After the hearing, House Speaker Jase Bolger’s office stated that $20 million for tax relief has been allocated in the budget.  Bolger (R-Marshall) supports the bill in an effort to increase auto sales in the state.

House Bill 4234 and the Senate bills are currently before the full House for consideration.