DES MOINES, Iowa — The Iowa Department of Transportation (DOT) is floating a list of potential revenue streams to make up for a $212 million shortfall in road use funding. One of nine options being proposed is a bump in vehicle registration fees from 5 to 6 percent, an increase the Iowa Automobile Dealers Association (IADA) is preparing to battle.
Bruce Anderson, president of the IADA, claims the fee hike, which could be imposed as early as next year, would hurt sales. “You want people to stop buying something, you tax it more,” he said.
Anderson said the dealer association prefers that the state increase vehicle fuel taxes to make up for the shortfall, arguing that vehicle owners would essentially be paying for the road improvements the more they drive.
Iowa’s new vehicle registration fee, which applies to both new and used — or “new-to-you” — vehicles, has sat at five percent for about the last 20 years. With the fee increase, a customer purchasing a $25,000 car would pay $250 more to register their vehicle with the state. The IADA argues that the fee hike would only hurt Iowa residents because it wouldn’t account for out-of-state drivers who travel on Iowa’s roads.
Iowa did include vehicle registration fees in a general sales tax up until 1998. That’s when lawmakers exempted car sales from a higher rate — instead opting to allocate more money to school infrastructure through a silo tax.
“You shouldn’t be increasing this fee year after year,” Anderson said. “It’s inflation proof. It’s five percent of the price of a car. So as the price of cars go up and up, so does that five percent piece.”
In an article by the Des Moines Register, though, Iowa DOT Director Paul Trombino noted that polls show residents oppose a fuel tax hike by nearly a two-to-one margin. He also pointed out several states include auto sales in a general sales tax.
The DOT’s Transportation Funding Concepts estimated that the fee increase would draw in approximately $60 million annually for the state. In its proposal, the DOT described the purpose of the tax as: “The fee for new registration is similar to a sales tax on the purchase of vehicles. This fee was not increased to six percent at the time the sales tax was increased to six percent.”