Towns face vehicle tax shortage from NC “Tax & Tag” collection problems

kjahner@newsobserver.comFebruary 7, 2014 

Ed Hargrove puts his 2014 tag on his license plate at the DMV tag office near Crossroads shopping center. The state's new process linking property tax and registration has initially resulted in decreased collections rates on the property tax.

KYLE JAHNER — kjahner@newsobserver.com

— As town officials begin the budget process, it seems clear that an outside force has already taken a bite out of revenues.

A statewide initiative to simplify and improve automobile tax collections could leave Garner – among other towns – short as income lags the old method’s results. It will provide budget-crafters a nuisance, although growth in sales tax receipts will provide a counter-balance.

Wake County typically posted 80-85 percent collection rates on property taxes on vehicles, finance director Emily Lucas said. But North Carolina’s new “Tax and Tag Together” program put the DMV in charge of a process that paired registration fees with property tax collection, and in this first year the collection rate has been 56 percent.

Lucas said about 3.5-4 percent of the towns revenues come from vehicle tax, so leaving an additional 25-30 percent of that uncollected would cost the town about 1 percent of its revenues. That figure (about $250,000), though not catastrophic, is significant. And Lucas doesn’t think it will get better before the budget is finalized this summer.

“I believe it's something we're going to have to account for at this point,” Lucas said.

At Monday’s council meeting, Lucas said sales tax revenues were running about 5-6 percent higher than last year. Along with economic growth, online retail sales – now subject to local tax – will augment the increase.

Building permit fees have also increased, jumping 87 percent, although that’s a much smaller portion of revenues. Many factors remain unknown as well. Real estate property tax collection has remained strong, Lucas said, but it’s unknown whether the property tax gap from vehicles will neutralize property tax growth.

Lucas identified preserving the town’s savings as the top budget priority, along with implementing the revenue savings plan, funding pay-for-performance for Town employee retention, continuing vehicle replacement and supporting priority projects like bond projects.

Council members expressed irritation at the shortfall from Tax and Tag.

“This is really disappointing,” Councilman Buck Kennedy said. “We cannot send a signal that we don’t have enforcement.”

The possibility of increased police efforts to cite out-of-date tags was broached, but as Lucas noted, that has its limits.

“I've kept (police) up to date, saying please have your staff and officers aware of this,” Lucas said. “But I know they have many other things to deal with on their plate than to deal with someone with expired tags.”

Councilman Gra Singleton implied that the collection troubles should have been seen coming.

“They knew rates (of on-time DMV registration) were low. I think they thought people would be excited to pay their property taxes,” Singleton said, noting the rate moved down instead.

Another budget-crunching issue Lucas noted was the projected opening of the police station next spring. That would put three months of operating costs – utilities, maintenance – of a new town building on the books.

The town’s budget staff – Lucas, town manager Hardin Watkins and his assistant Rodney Dickerson, and budget and special projects manager Jamie Ludovic – will iron out the numbers in coming months. The town must finalize the budget in advance of the start of the 2014-15 fiscal year on July 1.

Registration renewal fees and property tax can be paid in one payment on the DMV website. Lucas said there is hope rates will eventually increase as people get used to the new system and because they will be getting two notices – one from Wake County and the other from the DMV – to pay the taxes.

Jahner: 919-829-4822; Twitter: @garnercleveland

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