DALLAS -- Michigan Gov. Rick Snyder vetoed bills this week that would have accelerated sales tax breaks on car trade-ins, saying it comes at too great a price when other costs are rising and the state needs to maintain reserves.

Two bills passed by the House and Senate, Senate Bills 94 and 95, would have sped up the implementation of an already existing state law that, over time, would eliminate the practice of charging sales tax on the value of a trade-in when purchasing new vehicles in Michigan.

“The bills would accelerate a gradual and agreed upon phase-in of the sales and use tax relief to a degree that I believe is not fiscally prudent,” Snyder said in his veto letter. “With budget pressures from a number of areas in coming years, in particular dedication of funds to road funding, I do not believe it is appropriate to create additional financial strain by accelerating the tax relief agreed to in 2013.”

Rick Snyder, governor of Michigan, speaks during a grand opening ceremony at the expanded Toyota Motor North American Research & Development (TMNA R&D) center in York Township, Michigan, U.S., on Thursday, May 4, 2017.
Snyder said new timeline for sales tax break on car trade-ins would create additional financial strain for Michigan. Bloomberg

The legislation would have increased the trade-in amount excluded from taxation to $5,000 in 2018 and increased it by $1,000 per year in subsequent years.

The Senate Fiscal Agency estimated the bills would reduce sales and use tax revenue by $8.4 million in fiscal 2019, $17.7 million in fiscal 2020, and $28.7 million in 2021. Revenue reductions would continue until fiscal 2028.

The reductions were originally scheduled to phase in gradually to lessen the burden on the state’s general fund and School Aid Fund.

In 2013, Snyder signed legislation to exempt the value of a trade-in from the taxable purchase price of a new vehicle. But the legislation phased the exemption in slowly, beginning by allowing up to $2,000 of the value of a trade-in vehicle to be exempt from taxes in 2013.

The legislation phased the exemption in slowly, beginning by allowing up to $2,000 of a vehicle’s trade-in value to be exempted from taxes in 2013; then, starting in 2015, increasing the amount by $500 each year until reaching $14,000.

The bills were sponsored by Sen. Dave Hildenbrand, R-Lowell, and Sen. Dave Robertson, R-Grand Blanc.

Hildenbrand expressed disappointment over the veto.

"While I am frustrated with this veto, I remain committed to working with the governor to identify the necessary revenue and address his concerns regarding the impact this legislation could have on the state budget," Hildenbrand said. "As the chairman of the Senate Appropriations Committee, I am confident my colleagues and I can find this revenue in order to deliver tax relief to Michigan's hardworking residents."

On July 14, Snyder signed the state’s new $56.5 billion budget for the 2018 fiscal year beginning in October. Overall spending will increase 2% over the current fiscal year.

The plan includes more money for K-12 education, career and technical education, and road and bridge projects.

The state will spend $255 million more than planned on the Michigan Public School Employees Retirement System.

Much of the spending addresses $29 billion in unfunded liabilities in a legacy pension system for those hired before mid-2010 that is 60% funded. Another $150 million would be added to Michigan's rainy day fund, raising the balance to $886 million in fiscal year 2018 from $2 million in 2010. New funding of $35 million would go to a statewide infrastructure fund created last year after Flint's drinking water crisis.

Spending on transportation will increase by 8%, as a 2015 road-funding plan that includes fuel tax and vehicle fee hikes continues to be phased in.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.