Tax breaks on car sales a key part of question

Jean Reid Norman

Tuesday, Oct. 26, 2004 | 11:19 a.m.

"Shall the Sales and Use Tax of 1955 be amended to revise the exemption from the tax for the sale or use of used vehicles; to provide exemptions from the tax for the sale or use of prescription opthalmic and ocular devices and appliances, farm machinery and other agricultural equipment, works of fine art for public display, and professional racing vehicles and parts; and to revise the exemption from the tax on the sale or use of aircraft and parts of aircraft used by commercial air carriers?"

The job of one of the more confusing questions on the Nov. 2 ballot is to simplify the way the state charges sales tax.

The 87-word question would change the way the sales and use tax is charged on car sales, fine art, eyeglasses and other eye equipment, race cars, farm equipment and parts used to repair aircraft.

Its staunchest advocates and even its author agree it's a complicated question, but what may be more confusing than the wording is how it would affect different types of car sales.

If the question passes, a tax exemption of 4.5 percent to 5.5 percent currently given on the value of a trade-in at a car dealership would rise to 6.5 percent to 7.5 percent. At the same time, sales of cars between private parties, which now get an exemption of 2 percent, would no longer get a tax break.

If the question fails, car buyers at dealerships would pay the full sales tax of 6.5 percent to 7.5 percent on their purchases, and those buying from private parties would no longer pay any sales tax when they register their cars at the Department of Motor Vehicles, as they currently do.

Farm machinery, purchases of eyeglasses and similar equipment, fine art, professional race cars and parts used to fix airplanes also would get tax breaks of 2 percent more, the same as the exemption on car trade-ins.

The idea of that complicated proposal is to simplify Nevada's sales tax -- to eliminate all of the differences in the way the tax is charged, according to Rick Combs who helped write the question for the Legislative Counsel Bureau.

It's one step that state legislators hope will eventually help Nevada collect taxes on sales made via the Internet, Combs said. Nevada is one of 35 states participating in the Streamlined Sales Tax Project, which is designed to make sales taxes collected in all of the states uniform enough so that taxes can be collected in one state and sent to another.

Congress would have to pass a law to allow sales tax to be collected on Internet sales, but, Combs said, "It's the hope of the people participating in the project that if we streamline things enough, Congress would act because we can demonstrate we can collect it fairly."

Whether or not the question passes or fails, it will streamline Nevada's tax structure because all of the exemptions are part of the same question. The only issue is who gains and who loses, and by how much.

Wayne Frediani, executive director of the Nevada Franchised Auto Dealers Association, says the question would benefit consumers, who could save hundreds of dollars on the sales tax when they buy a new car using a trade-in.

"You take $1,000 off a car payment and finance it over 36 months, that's almost $30 a month in a car payment," he said.

But when asked about the effect on car sales between private parties, Frediani said, "I'm not sure about that. I'm not a lawyer."

The differences are evidence of a patchwork of laws and constitutional changes made over the years providing the exemptions, but to understand that mish-mash, voters first have to understand how Nevada's sales tax works.

The state Constitution imposes a 2 percent tax that goes to the state, and the Legislature is allowed to impose amounts above that to fund local governments and school districts. That portion is 4.5 percent to 5.5 percent, depending on the local taxes that have been approved. In Clark County it's 5.5 percent, making the total sales tax locally 7.5 percent.

Usually when voters approved exemptions on the 2 percent, as they did for food in 1984, the Legislature usually followed suit, exempting the rest. But not in the case of private car sales.

However, in many cases when the Legislature passed exemptions on the 4.5 percent to 5.5 percent within its control, such as fine art, race cars and the others, the exemptions never went before voters, leaving the differences that Question 8 would clear up.

"The Legislature always makes an effort to keep them the same," Combs said.

Now, with about half a dozen discrepancies to clean up on a ballot question, the question gives voters a clear choice of whom to favor with their tax breaks -- once they figure out what the question means.