A new system through which the responsibility of motor vehicle tax collection shifts from counties to the state, and registration is withheld until full payment is made, is anticipated to improve tax collections — and boost local revenues — in an area where only two out of every three bills is paid on time.
Effective starting in July, N.C. House Bill 1779 creates a combined motor vehicle registration renewal and property tax collection system, commonly referred to as the “tag and tax” system. It transfers the responsibility of tax collection for motor vehicles from the 100 counties to the N.C. Division of Motor Vehicles. The law, first introduced in 2005, will become effective in July.
“Under the current system, we bill in arrears. Some of the problems with that is only 66 percent of registered motor vehicles are paid on time throughout North Carolina,” said tax administrator Jim Johnson. “If you look at the average collection rates for motor vehicles statewide, it is about 85 percent, which could be much better. One of the driving forces for counties is to try to increase collection rates for motor vehicles.”
Other goals include improving the citizens’ experience by eliminating a step from the government process, as well as getting rid of the need for delinquent collections. If someone does not pay taxes on the motor vehicle when it is time to renew their registration sticker, they don’t get a sticker.
The new system would also see overall costs reduced, the tax administration said. The DMV sends out registration notices and the county has those same costs with subsequent overdue billing.
“With the low collection rate on motor vehicles, this new way of doing it will automatically increase the collection percentage, and it will also improve compliance,” said Johnson. “I think it’s a good project. We’re looking to collect more revenue. You look statewide at the collection on motor vehicle (taxes), there’s a lot to be desired.”
The county cannot afford to collect and store vehicles for everyone who does not pay their taxes, if they can even find them, Johnson noted. “It’s not feasible,” he said.
The new system is a simultaneous billing with property taxes and the “invitation to renew” motor vehicle registration.
“No partial payments will be allowed,” said Johnson. “They’ve got to be paid in full or the sticker will not be renewed. In terms of tax collections, we should have 100 percent collection rate on motor vehicles.”
Finance officer David Clack said the total motor vehicle tax levied in Sampson County alone from Jan. 1 to Dec. 31, 2012, not including towns and fire districts, was $3.6 million and Sampson regularly collects approximately 85 percent each fiscal year. “If we get that up, it makes a lot of difference,” said Clack. “It could be a significant amount of money.”
In April, counties will begin the process of working on files for the new billing, with those combined notices to be in mailboxes from the state no later than June 1. Renewals will be handled the same way, with the county tax office responsible for status and appraisal of local vehicles. The amount due will be sent to the DMV, which will print and mail bills and collect property taxes.
There will be a timeframe after July 1 — about five months — during which the new system and old system will be used concurrently, with outstanding payments on motor vehicle tax from June 2013 and prior still billed in arrears from the county even as the state begins to collect July 2013 motor vehicle tax.
Under the new system, the due date will be the 15th of each month. The taxpayer will have 30 days before or after the due date to appeal the value of their vehicle.
Operational costs are going to fall on local governments, not simply on counties but with each taxing district and municipality paying their share of the cost based on their contributions to the total amount of the notes. “Those costs will be shared by each taxing jurisdiction,” Johnson said. “It won’t all fall onto the county to pay the costs.”
The Department of Revenue conducted a comprehensive cost survey for counties that essentially stated that the median collector’s cost was $2.59 per bill. For a renewal paid by cash or check, the cost is $1.69 per transaction, including a $1.21 operating cost and a $0.48 collection fee.
Under the current system, for a $100 tax bill for a vehicle located in the city of Clinton, $75 of that bill would be for the county and $25 would go to the city. Using the county’s cost at $2.59, the total cost to local governments — county and city — is $2.97. Under the new system, the same $100 bill would bring a cost of $1.69, which would be a county cost of $1.27 and a city cost of $0.42. That is $2.97 cost compared to $1.69 under the new system.
Using a debit card brings a 1.05 percent — $1.05 on a $100 bill — additional fee applied to the payment for a total cost of $2.74 under the new system, still under the current $2.97 cost of the county’s billing in arrears system. A credit card brings a 1.93 percent fee added to the transaction for a total $3.62 cost, which would exceed the cost under the current system.
Crunching the numbers, Johnson said if half the county’s population paid with cash or check and the other half paid with debit or credit cards, the weighted cost per transaction would be $2.36 on a $100 tax bill, about a $0.61 savings from the $2.97 current cost to the county.
“A hundred percent of the people are not going to pay with credit card, so they’re trying to weight the percentage of people who are going to pay with cash or check versus using a debit or credit card,” said Johnson. “Still, with that being said, we think it’s going to be a lower cost to the local government versus the current system we have.”
The money would be collected by the state, and subsequently distributed back to local governments. County manager Ed Causey said it was expected to be a “quick turnaround” time.
Johnson said a lot has already been done as part of the transition to the new system, with county tax employees Cindy Cottle and Carrie Cooper working every day on the project since mid-November. Work has included working with vendors and state personnel, as well as transfering local data to the state’s VTS (Vehicle Tax System).
“We feel like we’re in a good position at this time,” said Johnson, who said local tax officials were also working “extremely hard” to compile a list of all addresses and applicable jurisdictional tax codes. “Basically, we have to take every road in Sampson County and apply particular codes based on that particular address. We’re about to finish up that work, hopefully this week, and turn that into the state as well.”
Training will occur at the end of February on the new VTS and final data migration for all counties must be done by mid-March. VTS will go live in April, Johnson said.
Just as soon as pamphlets and posters were printed locally to distribute to the public and raise awareness, House Bill 30 was introduced to repeal the legislation. Hearing that, Johnson, who has talked with lawmakers and proponents of the combined tax bill, including Sen. Peter Brunstetter (R-Forsyth), who told Johnson he did not believe there was a lot of steam behind that move.
He made similar comments during a recent N.C. Association of County Commissioners conference, assistant manager Susan Holder said. However, there has been some concern on what the repeal might mean.
“There is some opposition out there,” said Johnson. “Right now, the law says in July 2013 we have a new way of doing things. We have started distributing the pamphlets and putting up the posters and trying to get the word out to citizens to let them know the law is coming and things will be changing. It has come so far this time that it would be hard for me to believe at this time that it will be repealed.”
Chris Berendt can be reached at 910-592-8137 ext. 121 or via email at email@example.com.