The legislature and governor proposed in late December 2014, a constitutional amendment that will be put before Michigan’s voters on May 5th, 2015. Proposal 2015-1 would amend the constitution and trigger a package of related bills that would raise funds for road construction and maintenance, K-12 education and community colleges, and local governments, while restructuring several taxes.
Although described loosely as a “road funding” proposal, the effects of the proposal are far reaching, and complicated. Among these is a change in the amount and the type of registration tax levied on personal cars and other vehicles. This not only affects state tax revenue, it also raises federal tax liabilities for over one million Michigan residents. This occurs because many Michigan taxpayers will no longer be able to claim a tax deduction they currently claim. In its current form, the vehicle registration tax is a deductible personal property tax under the Internal Revenue Code. Our analysis of the new tax indicates that it would no longer meet the criteria set out in federal law for deductible taxes of this type.
We summarize a preliminary estimate of the effect of this loss of deductibility beginning in the year 2018 in this Tax Note.