Sound Transit thinks your car is worth more than it actually is.
That’s one reason why Sound Transit 3’s car-tab tax increase is leaving some folks with sticker shock.
While the higher car-tab tax included in Sound Transit 3 is new — it applies to tabs that expire after March 1 — the way that Sound Transit calculates your car’s value is not.
The agency has long used a simple but inflated formula that it inherited from the Legislature to calculate how much a car is worth and how much its owner should be taxed.
The formula dates back to 1990, when the state still charged a statewide tax based on the value of your car, and legislators changed the formula to bring in more revenue.
Over the first 10 years of a car’s life span, Sound Transit’s formula consistently overvalues a car’s worth compared with Kelley Blue Book values, resulting in higher car-tab fees for owners and more money to pay for light rail, buses and commuter trains in King, Pierce and Snohomish counties.
Sound Transit 3’s car-tab fees, along with a property-tax and sales-tax hike, will fund transit projects that include 62 new miles of light rail by 2041.
The newer the vehicle, generally, the more Sound Transit’s formula inflates the value.
Sound Transit says a 1-year-old car is worth 95 percent of its sticker price. Kelley Blue Book says the average 1-year-old car is worth only 70 percent of its sticker price.
Sound Transit says a 2-year-old car is worth 89 percent of sticker price; Blue Book says only 59 percent.
Take, for instance, a 2014 Toyota Camry, with 30,000 miles on it. It has a Blue Book value of about $10,700.
Sound Transit’s tax totals 1.1 percent of the car’s value — following an increase of 0.8 percentage points from ST3 — which would yield the agency $117 from that 3-year-old Camry.
But Sound Transit doesn’t think the Camry is worth $10,700. When new, it had a sticker price of about $23,000. At 3 years old, Sound Transit says the car is still worth $19,090, which means its portion of the car-tab fee is about $209.
Brad Benfield, a spokesman for the state Department of Licensing, which collects car-tab taxes for Sound Transit, said the formula is just a standardized way to collect tax money, not an accurate representation of a car’s worth.
“It’s not related to fair market value,” Benfield said. “It was designed to be an easy way to collect what’s essentially a property tax on a vehicle. They wanted to make sure that people who had similar cars paid the same tax.”
While Sound Transit’s valuation formula is not well known, the formula has never been hidden (it’s on the Department of Licensing’s website) and it did not change with the passage of ST3. Tax estimates published before voters approved ST3 last year were all based on the formula now in use.
Geoff Patrick, a Sound Transit spokesman, said more than half of cars taxed by ST3 will see car-tab fees for Sound Transit of less than $100 this year, and more than 80 percent will see fees less than $200.
“While there have been some stories about people who clearly have significantly more expensive vehicles,” Patrick said, “the vast majority are going to be in that range I just mentioned.”
The state and Sound Transit have a winding, convoluted history with how they value vehicles and, despite a recent pushin the Legislature to change the formula, the current one appears to be stuck in place for the next decade.
The state started collecting car-tab taxes during the Great Depression but moved to the boost formula in 1990 as part of a broad transportation funding package.
In 1996, Puget Sound-area voters approved the Sound Move initiative, creating Sound Transit and authorizing a 0.3 percent car-tab tax to help fund light rail in the region. That tax — for the Sound Transit region only — was on top of a 2.2 percent car-tab tax that was, at the time, applied statewide.
To make things simpler, Sound Transit adopted the state’s inflated valuation chart for figuring out how much a vehicle was worth.
Sound Transit began selling 30-year bonds to fund light-rail construction in 1999. That same year, statewide voters changed course. They passed the Tim Eyman-backed Initiative 695, which ditched the 2.2 percent car-tab tax and replaced it with a $30 flat fee. The courts ultimately ruled I-695 unconstitutional, but the Legislature got the message and enacted the change anyway.
At this point, Washington no longer collected a statewide tax based on a car’s value, but Sound Transit continued to collect one and kept the state’s old valuation formula.
In 2002, statewide voters passed another Eyman initiative, I-776, which repealed Sound Transit’s car-tab tax, replacing it with the $30 fee. But that initiative got overturned too.
Sound Transit, remember, had already started selling bonds based on the tax rate and inflated vehicle-valuation chart that were in place after Sound Move passed. The state Constitution prohibits laws from “impairing the obligations of contracts.”
So the state Supreme Court ruled, essentially, that there were no take-backs. After voters authorized taxes and Sound Transit sold bonds based on those taxes, voters could not go back and change those taxes, because that would imperil Sound Transit’s ability to repay the bonds.
The Legislature has, in fact, already repealed the inflated valuation chart, replacing it with a more modest one in 2006. But the new chart is a bit of a phantom. No one uses it.
Sound Transit is the only agency in the state that charges a car-tab tax based on a car’s value. And, since it sold those bonds based on the old valuation chart, Sound Transit will continue to use the old chart until the bonds are paid off, in 2028.
Patrick said that ST3’s tax increases could have been applied to the more modest valuation chart — which would have meant less revenue for the agency — but, for simplicity’s sake, were not.
So, for car owners frustrated about their car-tab fees, there is light at the end of the tunnel. Come 2028, barring other changes, Sound Move’s 0.3 percent car-tab tax expires, and the remaining car- tab tax, from ST3, will be applied to the newer, more modest valuation chart.
“It’s paying for transportation relief in a region where we’ve got some really chronic traffic and there’s been a huge amount of public support,” Patrick said.