Beshear takes action to halt surge in vehicle property taxes

The two steps would deliver about $1.2 billion in combined tax relief, Beshear said.

Republican House Speaker David Osborne later called it a “piecemeal, short-term approach” and said “far more can be accomplished.” GOP lawmakers have signaled they want to consider sweeping tax code changes in this year’s legislative session, which reached the halfway point Wednesday.

Beshear on Wednesday signed an executive order to halt the sticker shock that Kentuckians are experiencing from escalating vehicle tax bills, stemming from the pandemic-related surge in used car values. The order will amount to about $340 million in reduced vehicle property taxes, he said.

“Kentuckians will pay a similar amount that they did last year,” the governor said at a news conference. “If they own the same vehicle and it’s in the same condition and they’re living in the same county, they will not pay taxes on the inflated value.”

Beshear ordered a two-year freeze to keep the taxable value of motor vehicles at last year’s levels. Kentuckians who already paid their vehicle property taxes this year will receive refunds for the increased amounts, Beshear said. Refunds will be issued within 180 days.

Used vehicle prices have soared as new cars became more scarce because of supply chain shortages caused by the coronavirus pandemic.

State officials recently notified county officials that the 2022 overall valuation for vehicles would go up about 40%. For many vehicle owners, it meant a big increase in their tax bills — until Beshear’s action Wednesday. The tax rate remained the same as previous years, but escalating used vehicle values caused the amount of taxes owed by some to go up, the state Revenue Department said.

The Kentucky House passed legislation recently to give tax relief to vehicle owners. That measure is awaiting action in the Senate. Republicans have supermajorities in both chambers.

The Senate approved a resolution last week also aimed at providing relief to vehicle owners. Responding to Beshear’s action Wednesday, GOP Sen. Donald Douglas said: “Better late than never” while adding it will be “a win” for Kentucky taxpayers. Douglas is the resolution’s lead sponsor.

Republicans said the governor could have remedied the problem weeks ago. Beshear said the Senate resolution signaled he has the authority to fix the vehicle-tax problem.

“So today I fixed the problem,” the governor said Wednesday.

Meanwhile, Beshear endorsed a bill introduced by Democratic Rep. Angie Hatton to temporarily cut the state sales tax rate from 6% to 5%. That cut, if enacted, would deliver $873 million in tax relief for Kentuckians struggling with rising prices, the governor said.

“This historic sales tax cut will help families until the high U.S. inflation rate retreats,” Beshear said.

America’s current inflation woes stem from the COVID-19 pandemic. Supply chains for computer chips, clothes, furniture and other goods are under stress. At the same time, consumer demand has surged after a historical amount of government aid flowed into the economy.

Under the bill, the lower sales tax rate would be in place for a year, starting July 1. The sales tax is applied to many goods and services, although not groceries and prescription medicines.

Hatton called the temporary rate cut a “good step” to help “offset the higher cost of everything.” Lawmakers next year could review whether the lower rate should be extended, she said.

Budget and tax issues are expected to dominate the last half of this year’s 60-day legislative session. Details of a Republican tax plan have yet to emerge. Osborne said Wednesday that “far more can be accomplished” than what the governor supported Wednesday.

“Why should the people of Kentucky settle for a temporary one percent sales tax cut when we can adopt policies that let them keep more of their hard-earned money in the first place?” the House speaker said in a statement.

Beshear urged Republican lawmakers to resist tax changes that benefit corporations and wealthy Kentuckians. He said the sales tax cut would benefit Kentuckians in every income bracket.

“We’re talking about savings for every single family buying the things they need,” Beshear said.