A Dodge Challenger, left, and a Dodge Dart are on display at the Golling Chrysler Dodge Jeep Ram dealership in Bloomfield Hills, Mich., Tuesday, Oct. 22, 2013. Starting Dec. 15, people will pay less in sales tax on a car purchase in Michigan because the value of your trade-in can be counted under a deal between lawmakers and Gov. Rick Snyder. (AP Photo/Carlos Osorio)
LANSING, Mich. (AP) — Gov. Rick Snyder will sign legislation Wednesday giving new vehicle buyers a tax break when they have a trade-in, his office announced.
The law that’s to take effect Dec. 15 will subtract part of the value of the trade-in from the purchase price for Michigan sales tax purposes. The state has a 6 percent sales tax.
Snyder’s office said the Republican governor will hold a news conference at Shaheen Chevrolet in Lansing to sign the bill.
Four Republican legislators are scheduled to join Snyder at the ceremony: the sponsors, Sen. Dave Robertson and Rep. Andrea LaFontaine; Senate Majority Leader Randy Richardville; and House Speaker Jase Bolger.
In the first year, people will no longer pay the sales tax on up to $2,000 of the value of their trade-in. That’s a savings of up to $120.
The amount of the trade-in value that can be subtracted from the sales price will increase by $500 a year, which equals an extra $30 tax break per year until it is fully phased in 25 years from now.
Legislators say they expect most car buyers to be able to credit the full value of their trade-in against the purchase price within six years. Boat buyers can immediately subtract the full value of their trade-in starting Dec. 15.
Michigan is among just six states to make car buyers pay sales tax on the full price without counting their trade-in, according to the Michigan Auto Dealers Association, which has pushed the legislation for years as a way to jump-start sales. Critics say the existing law is a form of double taxation because buyers previously paid full sales tax on the vehicle they are trading in.
Last month, Terry Burns, executive vice president of the auto dealers association, said Michigan customers often ask dealers why people in bordering Ohio, Indiana and Wisconsin get a sales tax reduction for their trade-in.
“This is a very major purchase for our customers,” he said. “They will see the tax relief at the point of sale. They don’t have any additional forms to fill out. There’s no means test. There’s nothing.”