Virginia Car Tax Reaches 25% Total for some Vehicles


    The theoretical worst case scenario (25% car tax) would occur for the owner of a hypothetical $100,000 clean fuels vehicle in northern Virginia (NoVA). If that hypothetical “green dream” car has a low depreciation rate, then the 10-year cumulative car taxes (sales tax + annual property tax + hybrid fee) now adds up to about 25% of the purchase price of the car, for a whopping $25,000 tax bill in some northern Virginia localities.

    Hypothetical $100,000 green dream car? “No way!” is what Elon Musk, the creative force behind the popular, and expensive, Tesla Model-S battery electric vehicle (BEV) is probably thinking. Tesla is trying to gain state legislative approval to open direct-to-consumer sales stores in Virginia. With arguably the highest car tax rates in the nation, Virginia would be wise to immediately welcome Tesla with open arms, and maybe some Virginia smoked ham and wine.

    The “good” new is, despite the fact that the Tesla Model-S has achieved the highest safety rating of any car ever tested, and despite Consumer Reports stellar reviews calling the Model-S nearly perfect, my conservative best guess is that the Model-S will show a moderate (not low) depreciation rate. This means that I actually estimate a 20% NoVA cumulative car tax rate for the Model-S.

    The “bad” news is that many hybrid cars do indeed have very low depreciation rates. According to Fairfax County, my 7-yr old Toyota Prius is still worth $8850 on the tax books. Yet more bad news, car tax rates are still going up, as former Governor Jim Gilmore’s car tax reduction program is gradually phased out. In Alexandria, for example, the top car tax rate has just been increased to 5.0% with only 40% tax relief on the car value under $20,000. This tax is levied every year and is on top of the initial 4.15% state sales tax at the dealer.

    Let’s talk numbers:

    As shown in Table-1, cumulative 10-yr car taxes currently runs from a low of about 10% or less outside of NoVA, up to a maximum of about 20% in NoVA. The worst case “tax bracket” (25%) would occur in a locality such as Alexandria if there exists a very expensive green car with a low depreciation rate (eg; Tesla EV). Many hybrids with low depreciation rates are going to run around 20% total taxes in NoVA (assuming 5% local tax rate with 50% tax relief under $20,000).

    Table 1 – Northern Virginia Cumulative Total 10-yr Tax Estimates for 2013

    Because hybrids cost about $4000 more than the equivalent non-hybrid model, hybrid vehicles were already clobbered with higher car taxes in Virginia, far beyond the VA Republicans poor ability to add or detract with their “nonsensical” new $64/yr hybrid fees. Maryland looks like heaven in this analysis. The new Toyota Prius “Plug-In” (not shown above) could be as much as $4500 cheaper there, and Maryland offers a 150,000-mile battery warranty as well (CARB compliant state).

    After buying a new car (average US cost = $31,250) many north Virginians are shocked when their first annual car tax bill arrives in the mail. Residents are also not aware of their cumulative total car taxes, because there is no available cumulative car tax calculator for VA. Further complicating the problem, each locality has its own unique car tax formula.  A tool to estimate total car taxes should be made available to Virginia residents.

    Virginia needs to officially review and, in all probability, reform the car tax system. Georgia recently moved away from a car tax system similar to Virginia. The change seems to have been well-received by Georgia localities, because the localities now get the tax dollars as an up-front lump sum. The longer we wait, the greater the chance that VA residents may become upset when they realize how much total tax that they are paying on a new car.  New car sales will be reduced and skewed towards cheaper (and less fuel efficient) vehicles.