HF5102

Purpose

• Change how the motor vehicle registration tax is calculated for passenger automobiles and hearses. The bill bases the tax on the vehicle’s Manufacturer’s Suggested Retail Price (MSRP) and the vehicle’s age, rather than using a single flat rate. It also sets rules for how MSRP is determined, whether the destination charge is included, and adds a cap so a vehicle won’t pay more tax than the smallest amount paid or due in the past.

Scope

• Applies to passenger automobiles and hearses, with separate rules for vehicles first registered in Minnesota before November 16, 2020 and those first registered on or after that date.

How the Tax Is Calculated (Overview)

• The tax is calculated as a percentage of the MSRP (the price used for tax purposes), with the percentage changing based on how long the vehicle has been in use.
• The calculation rules include:
  • For older vehicles, some base amount plus a percentage of MSRP, and the destination charge may be included.
  • For newer vehicles, a different base figure plus a percentage of MSRP, with the destination charge treatment described below.
• The amount due uses information available to dealers and deputy registrars when the initial registration is submitted.

MSRP Determination

• The registrar must determine MSRP using:
  • List price published by the manufacturer or by a nationally recognized industry data source; or
  • If a dealer uses the manufacturer’s retail price label (as allowed by law), that price; or
  • If the label isn’t available, the actual sales price; or
  • If MSRP can’t be ascertained by these means, the registrar may use any other available source or method.
• The intention is to rely on reliable, standard price data to set the tax base.

Destination Charge and Accessories

• The tax base must not include the cost of accessories or optional equipment separately added to the vehicle.
• The destination charge is treated differently depending on when the vehicle was first registered:
  • The destination charge is included for vehicles previously registered in Minnesota before November 16, 2020.
  • For vehicles first registered on or after that date, the destination charge is not included (subject to the bill’s adjustments).

Year-by-Year Percentage Schedule (Percent of MSRP)

• The amount of tax (as a percent of MSRP) changes by the vehicle’s age:
  • Year 1: 100% of the price
  • Year 2: 95%
  • Year 3: 90%
  • Year 4: 80%
  • Year 5: 70%
  • Year 6: 60%
  • Year 7: 50%
  • Year 8: 40%
  • Year 9: 25%
  • Year 10: 10%
  • Year 11 and each year after: 20% (per the bill’s schedule)
• This creates a declining tax amount as the vehicle gets older, with a specific cap at year 11 and beyond.

Caps and Limits

• Regardless of ownership history, the total tax due for a vehicle cannot exceed the smallest total amount previously paid or due on that vehicle. This acts as a cap to prevent unexpectedly high long-term taxes.

Changes to Existing Law

• Replaces or modifies the prior structure of the registration tax, tying the tax more directly to the vehicle’s value (MSRP) and its age.
• Introduces a formal method for determining MSRP and a clear year-by-year tax schedule.
• Eliminates inclusion of accessory costs in the tax base and clarifies when the destination charge is included.
• Adds a cap so the lifetime tax on a vehicle is limited to the smallest amount paid or due historically.

Implementation and Administration

• The registrar and dealership staff use MSRP data and the defined schedule at the time of initial registration to compute the tax.
• If price data isn’t available from standard sources, the registrar may use alternative methods to determine MSRP.
• The bill requires adherence to the specified ordering of steps for calculating the tax, including how the destination charge is treated and how the cap is applied.

Potential Impacts

• For new vehicles, the initial registration tax may be based on the higher MSRP, but the tax declines in later years as the vehicle ages.
• For older vehicles, the tax structure could differ significantly from the current flat-rate approach, potentially reducing or increasing tax depending on MSRP and age.
• Consumers and dealers will rely more on MSRP data sources and the year-by-year schedule when computing taxes.

Relevant Terms passenger automobiles; hearses; registration tax; MSRP; Manufacturer’s Suggested Retail Price; destination charge; list price; retail price label; United States Code title 15 section 1232; initial registration; dealer; deputy registrar; adjustments; year; percent; first year; second year; third year; tenth year; eleventh year; cap; smallest total amount previously paid or due; accessories; optional equipment; source data; vehicle life; pre-2020; post-2020.