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Tax breaks on vehicles could help Missouri manufacturers but hurt roads

February 13, 2004
By: Sara Bondioli
State Capital Bureau
Links: HB1239

JEFFERSON CITY - Missouri's automobile industry supports exempting Missouri-made vehicles from state sales tax, but it could cost the state's roads -- while handing a new car purchaser as much as a $1,000 savings.

The House bill would exempt vehicles made in Missouri from state sales tax. Individual cities could decide to exempt Missouri-made vehicles from local sales tax as well. The bill's supporters said this would likely increase sales of Missouri-made vehicles and encourage other manufacturers to open plants in the state.

Currently, Ford, Chrysler and General Motors manufacture various models of cars, vans and pick trucks in Missouri.

The bill's sponsor, Rep. Michael Spreng, D-St. Louis County, said he is pushing for bipartisan support similar to that which helped keep the Hazelwood Ford plant open last year. He said increased sales resulting from the tax exemption could also encourage Ford to bring back the second shift at the plant, which is in his district.

The bill could take a chunk out of the Transportation Department's budget.

Currently, half of the 4.225 percent state sales tax on vehicles goes to the Missouri Department of Transportation. In the last fiscal year, MODOT received $171 million in sales and use tax from the purchase of all vehicles sold in the state. The bill would only affect new vehicles made in Missouri. Cities and counties received $44 million in state sales and use tax from vehicles sold over the same year.

Official numbers on the loss of state revenue from the proposal are unknown because exact numbers of vehicles made and sold in Missouri are unknown, Spreng said.

He said he expects the overall impact on the state to be minimal because the money consumers save on their car purchases will be spent on other items.

MODOT Finance Coordinator Ben Reeser said the money the department receives from sales and use tax is mostly used to fund road and bridge projects. Less money likely means fewer projects, he said.

Last year, 360,000 vehicles were sold in Missouri, including those made out of state. Sam Barbee, legislative affairs director for the Missouri Automobile Dealers Association, said the average selling price for a new vehicle is about $25,000, but vehicle trade-ins can lower the purchase price.

Gary Drewing, president of Joe Machens Ford in Columbia, said about 75 percent of his customers trade in vehicles when they purchase new ones.

The tax exemption would have a positive impact on the entire state, not just the four communities that have manufacturing plants, said Rep. Harold Selby, D-Cedar Hill. Selby has filed a similar bill in the House. He said the measure would be good for the web of suppliers related to the auto industry.

"Even if a community doesn't have an auto plant, that auto plant web stretches all across the state," he said.

The Missouri Automobile Dealers Association supports the bill but recognizes it may have some negative effects, said Sam Barbee, legislative affairs director. The association represents some dealers who don't sell any Missouri-made vehicles and may question whether it would hurt their businesses.

Barbee said other manufacturers would competitively price their products if this became a problem. However, sales tax is one of the last things consumers think about when buying a car, he said. Missourians may not even realize state sales tax is excluded from Missouri vehicles unless dealers advertise it, he said.

Dealers selling Missouri-made vehicles could be cautious too.

"It could tend to put a dealer in a funny situation because of the special order side of things," Barbee said.

For example, customers special-ordering the Eddie Bauer version of a Ford Explorer may be upset when they find out they are not built in Missouri. Thus, state sales tax must be paid on that vehicle but not on a regular Ford Explorer from Missouri that is sitting on the lot.