Every year the owners of the more than 6.5 million vehicles registered in the Commonwealth of Virginia must pay personal property taxes; comply with safety and, in Northern Virginia, emissions inspections; and maintain up-to-date registration for their license tags. To show that they have complied with each of these requirements, citizens receive the appropriate stickers to place on the vehicle windshield and license plates. Virginia's decentralized system for regulating vehicles, which requires multiple stickers and interactions with different agencies, appears to be unique among the states. Are all of these stickers necessary? Why can't compliance with various requirements be designated by placement of one sticker on the vehicle's license plates? Is it time for Virginia policymakers, who initiated a study several years ago, to reconsider the uncoordinated system for regulating vehicles?

Registration, licensing, and safety and emissions inspections are the responsibility of Virginia's Department of Motor Vehicles (DMV) and Virginia State Police. Personal property taxes and sticker requirements are performed at the local level. In the past the state has considered the possibility of coordinating state and local regulation of motor vehicles. In 1993 the General Assembly required the DMV, Commission on Local Government, Virginia Association of Counties, Treasurers Association, Commissioners of Revenue Association, and Virginia Municipal League to conduct a study on this topic. The group issued its final report in 1994. This article presents and updates the findings of that study and suggests ways policymakers can improve the process of vehicle licensing and registration.

Cost of motor vehicle requirements and taxation

The state safety inspection sticker and the local government sticker displayed in the middle of car windshields provide evidence that vehicle owners have complied with certain requirements. Vehicle owners must also obtain a renewal sticker for license plates every one or two years and, in Northern Virginia, certification that the vehicle passed the emissions test. The cumulative cost of these various requirements can exceed $1,000 for a three-car family, not counting the time spent by the car owner to fulfill the various requirements at several locations.

Since vehicles from other states do not display this plethora of stickers, the question arises, why can't all of these requirements be administered by DMV, which could certify compliance with all requirements when it renews license tags? Compliance could then be designated with only one sticker on the license plate of each vehicle.

Regulation of motor vehicles

State and local levels of government regulate and tax automobiles via various requirements enforced by different departments. The sticker requirements, some of which are unique to Virginia, can be confusing. For example, safety inspections, which are conducted by approved service stations, are managed as a state police program. Emissions inspections, often conducted by the same service stations, are only required in certain jurisdictions in Northern Virginia and fall under DMV responsibilities. County and city stickers, denoting personal property tax payments, are a local government responsibility and are administered differently in each jurisdiction.

Registering motor vehicles and issuing license plates

Beginning in 1906, the owner of any "automobile, locomobile, or any vehicle of any kind" was required to register his "machine" with the secretary of the commonwealth. These registrations, done at the local level, were valid for the life of the vehicle. Over the following decades, the local option characteristic of registration eroded as more and more localities adopted state registration requirements and as state law first permitted and then required that motor vehicle owners obtain certificates of title. By 1932 Virginia law required that all motor vehicles be registered before their operation on public highways. These registrations expired annually on March 3.

In 1972 the General Assembly authorized staggered registration renewals. Beginning in 1973, registration renewals were spread throughout the year and annual issuance of new license plates was replaced with a system of annual validation decals. In 1988 the General Assembly authorized the DMV to offer biennial registration for all motor vehicles except those registered under the International Registration Plan and those registered as uninsured.

Emissions inspections

Another DMV requirement associated with registration in Northern Virginia is an emissions inspection, or issuance of an emissions inspection waiver. This requirement applies only to motor vehicles registered in the counties of Arlington, Fairfax, and Prince William and the cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park. Applications for and renewals of registration in these localities must be accompanied by evidence that vehicles have either passed an emissions inspection or have been issued an emissions inspection waiver. When the emissions inspection system was originally established in 1980, inspections were required annually. The 1988 General Assembly, however, changed the program to require only biennial inspections so that the emissions inspection cycle conformed to the optional biennial registrations authorized that same year.

Safety inspections

Automobile safety inspections are not administered by the DMV but, rather, by the Virginia Motor Vehicle Safety Inspection Program of the Virginia State Police Safety Division. This program, implemented in 1932, promotes highway safety by ensuring that automobiles meet certain safety requirements. Safety inspections are required annually at approved inspection stations. As of 1998, 14,200 licensed safety inspectors at 4,086 active inspection stations performed over 5,949,000 vehicle inspections. Of those inspections, about 10 percent, or 587,600 vehicles, were rejected for being unsafe. A sticker in the middle of the vehicle windshield indicates if a vehicle passed or failed inspection, with those that pass showing the month and year when the next inspection is due.

Local vehicle registration

Section 46.2-752 of the Code of Virginia permits local jurisdictions to levy taxes on and require licenses for motor vehicles, trailers, and semi-trailers. Virginia is one of only 12 states where personal property taxes on cars are set at locally determined tax rates, while 20 states have no value-based taxes on motor vehicles. The remaining states set taxes at the state level. In Virginia, each locality establishes fair market value by using loan, trade-in, or retail value as determined by a recognized pricing guide (e.g., the National Automobile Dealers Association's "blue book" value). Localities establish different assessment ratios, ranging from 15 percent to 100 percent of fair market value, and the effective tax rates charged by localities vary widely. A local vehicle license--a sticker or decal applied to the vehicle's windshield--provides proof of payment of these locally determined personal property taxes. The fee charged by a locality for the sticker cannot be greater than the fee charged by the state to register the vehicle. All Virginia counties (except for Buchanan and Dickenson), as well as all but 16 of Virginia's 189 towns, have taken advantage of this authorization.

Efforts by local governments to use the issuance--or denial--of these local vehicle licenses as a mechanism for collecting various local taxes, fees, and fines have become increasingly controversial in the General Assembly. In 1956 the General Assembly authorized localities to require that all local personal property taxes owed on any vehicle be paid as a precondition to the issuance of a local license for the vehicle. The legislature went a step further in 1987 and allowed seven northern Virginia localities--the counties of Arlington, Fairfax, Loudoun, and Prince William and the cities of Alexandria, Falls Church, and Fairfax--to require that local parking tickets issued to a vehicle's owner be paid before issuance of a local vehicle license. In 1990 localities were also permitted to withhold local vehicle licenses until an applicant's personal property taxes on mobile homes were paid. However, legislation (HB 2008) offered a year later, which sought authorization to deny a local vehicle license to any applicant who owes any delinquent debt to the locality, was not approved.

Until passage of Governor Gilmore's car-tax rebate program in 1998 (discussed in more detail below), DMV's involvement with most local motor vehicle registration programs had been limited. However, these programs were regularly the subject of legislation coming before the House roads and Senate transportation committees. Typically, DMV's involvement in these programs had extended no further than furnishing localities with lists of motor vehicles registered within their jurisdictions. With implementation of the governor's car-tax rebate program, the flow of information between DMV and local governments increased dramatically in order to determine eligible car owners and what amounts they are owed in each jurisdiction. This increased flow of information could prove beneficial in exploring ways to better coordinate vehicle requirements at state and local levels. Section 46.2-756 of the Code of Virginia allows DMV, on the basis of written agreements with localities, to collect local motor vehicle licensing fees along with state fees when registrations are issued or renewed. However, no localities have implemented this option.

Study to coordinate requirements

During the 1993 General Assembly session, Senator Charles L. Waddell sponsored Senate Joint Resolution 250 to study the coordination of collecting local personal property taxes, local motor vehicle license fees, and the state registration of motor vehicles. The resolution required that all relevant factors be examined to determine the desirability and feasibility of providing a consolidated mechanism to handle these functions.

The resulting report, "Study Coordination of Collection of Local Personal Property Taxes and Local Vehicle License Fees with the State Registration of Motor Vehicles," (Senate Document No. 13), was submitted to the General Assembly in 1994. The report noted a close relationship between the state registration of motor vehicles, local licensure of motor vehicles, and local personal property taxes on motor vehicles and cited citizen suggestions for coordinating the various vehicle requirements. The study suggested that a closer coordination of state and local motor vehicle licensure and the collection of personal property taxes may be desirable. It was also open to the idea of a "one-stop shopping" concept for these fees and taxes that could result in cost savings to both state and local governments, as well as time savings to citizens.

However, a major complicating factor in any proposed changes to the status quo regarding state and local taxing authority of vehicles is the fact that local political jurisdictions in Virginia have historically collected license fees and local personal property taxes on a schedule established by each respective jurisdiction. Although the Code of Virginia enables the DMV, upon written request by local political jurisdictions, to collect local motor vehicle license fees, payments must be for the same period of time as that for the state license plate fees.

At the time of the study, only three political jurisdictions-- the city of Richmond, and the counties of Augusta and Northumberland--had adjusted their expiration dates for local vehicle license fees to coincide with state license expiration dates. Of those three, only Augusta County considered having DMV collect local vehicle license fees on its behalf. However, no local jurisdiction has implemented this option, and the DMV has never collected taxes or fees for any local jurisdiction. Hence, no cases are available to evaluate the pros and cons of having DMV coordinate and implement this activity.

Issues raised by the study

The joint study raised several issues regarding efforts to develop greater coordination between state and local governments on car requirements. These issues included the fact that state registration, license plates, and renewal decals may be purchased for either one or two years at the option of the registrant. Also, no standard timetable exists among local governments for collecting fees for local decals or personal property taxes. Most localities collect these fees and taxes on an annual cycle. However, the specific cycle differs among the jurisdictions. To maintain the convenience and cost-effectiveness of multi-year registrations, localities would be required to adopt the same schedule or cycle for automobile personal property taxes and vehicle license fees. The study noted that coordinated schedules could dramatically affect cash flows to local governments, especially during the first year. Currently, though, the car-tax rebate system is being phased in, and this development was not--and probably could not have been--anticipated by DMV and the other organizations conducting the study. Cash flows to local governments from the car tax will be dramatically affected, but the absence of the car tax should also make it easier to combine the remaining requirements.

Another issue raised by the study was that implementing the collection of personal property taxes and local decals on an annual basis would increase customer traffic in DMV branch offices, leading to a reduction in the convenience and cost-effectiveness of DMV operations that has occurred under the multi-year option. However, DMV and most localities accept payment of fees and personal property taxes by mail, a service that decreases customer traffic at DMV offices. In addition, since the study, the DMV has introduced a queuing system, and waiting times for customers have been reduced to under seven minutes at most locations.

The third issue raised in the study was that the simultaneous payment of personal property taxes on automobiles along with local vehicle decals and fees could prove financially difficult for many citizens. Existing state and local vehicle requirements usually allow a vehicle owner to recover from one fee before incurring another. Coordinated collection of personal property taxes, local vehicle decals, and state registration would eliminate this staggered schedule, making all costs and fees payable at one time. The study did not consider that many citizens throughout the state, but particularly in Northern Virginia, might welcome a one-time payment mechanism. However, changes in the car tax, enacted after the report was issued, mean that the financial burden of a one-time payment would be significantly reduced.

The final issue raised in the study was that many citizens could become confused over what political jurisdiction was actually receiving the vehicle taxes and fees if the collection were removed from the hands of local governments. Such changes might tend to disrupt the link between those who pay the taxes and those who provide local governmental services. The study speculated that this disruption could result in some erosion of both the authority and responsibility of local governments. However, numerous other grant programs and transfer payments between various levels of government have not caused this confusion or erosion of authority and responsibility.

The joint study's recommendations

Although the joint study looked at the different factors noted above, a consensus of the study's participants recommended that the process for collecting personal property taxes and vehicle registration fees remain unchanged. This recommendation does not, however, preclude any local political jurisdiction from requesting DMV to collect local vehicle license fees as currently provided under section 46.2-756 of the Code of Virginia. Study participants further recommended that DMV and local governments maintain a high level of communication and cooperation as automated information systems continue to be developed. The study concluded that such interaction would allow for the evolution of enhanced customer service functions such as the joint collection of taxes and fees at both state and local levels.

Governor Gilmore's car tax rebate

When candidate James Gilmore ran for governor in 1997, one of his primary themes was elimination of the personal property tax on automobiles. "No Car Tax" signs appeared throughout Virginia, and this campaign promise was widely credited as the reason Gilmore won the election. During his inaugural speech, Gilmore made this pledge one of the top priorities for the new General Assembly session, resulting in passage of the Personal Property Tax Relief Act of 1998.

The car-tax legislation, one of the largest tax-relief measures in the history of the state, eliminated the car tax on approximately 90 percent of all Virginia vehicles during the five-year phase-in period that started on January 1, 1998. When the program is fully implemented, the tax will be eliminated on the first $20,000 of a vehicle's worth. Implementation of the car-tax rebate required an unprecedented degree of cooperation and exchanges of data between the DMV and local governments.

While one might think that the gradual elimination of the local personal property tax on cars could lead to the elimination of local decals, this is not the case. Jurisdictions will continue to use decals as a source of revenue, and vehicles worth over $20,000 will continue to be subject to local property taxes. So having DMV collect sticker revenue and return it to local governments remains an issue for consideration, even though the car tax will be phased out for most vehicles in the not too distant future. The question of combining safety inspections with license renewals also remains an issue.

Current views on increased cooperation

Given the exchange of information between DMV and local governments to implement the car-tax rebate program, the question arises as to whether it would be feasible to coordinate other car requirements. As automated information systems have continued to develop, DMV and local governments have increased levels of communication and cooperation. The 1994 study concluded that this interaction would allow the evolution of enhanced customer-service functions such as joint collection of state and local taxes and fees.

According to DMV officials, local governments have tended to resist having DMV collect any fees for them. However, local governments have proposed that they collect fees for DMV, a proposal declined by DMV. Local governments have also proposed setting up tables in DMV offices to collect personal property taxes and decal fees for cars. DMV has allowed this procedure in those jurisdictions making the request. However, DMV would prefer to collect all fees for state and local requirements. The division's second preference would be to have local governments collect their own fees. DMV's least favorite alternative is to have local governments collect DMV fees. Apparently, the preferences of local governments are the opposite of those of DMV.

This does not mean that having DMV ultimately collect personal property taxes for local jurisdictions will never happen. As discussed earlier, recent developments under Governor Gilmore have led to much more cooperation and coordination between local tax administration offices and the DMV. Conclusions and recommendations

Many changes have occurred regarding the relationship between DMV and local governments since the joint study was issued in 1994. Given the findings of this study, another one probably is not needed to begin experimenting with greater consolidation and coordination of car requirements. For example, the safety inspection sticker could be eliminated if DMV treated the safety inspection process the way it now treats emissions inspections: by having the inspection completed and securing the results before the license-plate renewal stickers are provided. Likewise, local jurisdiction stickers signifying payment of personal property taxes could be eliminated if DMV required submission of a receipt or other form showing the tax had been paid before it would issue license-plate renewals.

Given the authority already in place under Section 46.2-756, which allows DMV to collect fees at the request of local governments, no action is needed by the General Assembly to experiment with DMV providing this service for one or two jurisdictions in order to see if efficiencies are, indeed, possible. A county or a city could engage in a one- or two-year test to determine if it is more efficient for DMV to collect fees for local jurisdictions. If this procedure were successful, other jurisdictions throughout the state could adopt it. Such a process would eliminate the local sticker and ease the burden on taxpayers, who would pay lower--or no--local administrative costs. Although it is difficult to quantify the amount of resources local jurisdictions devote to issuing stickers, some efficiencies should certainly be realized in making such changes.

In summary, Virginia policymakers should determine the actual benefits that could accrue from having DMV collect all vehicle-related fees and taxes by

• Providing a test of "one-stop shopping" for citizens to comply with vehicle requirements by primarily dealing with DMV. As part of the test, citizens in the testing area would apply only one sticker annually instead of the current three stickers throughout the year.
• Conducting surveys and/or focus groups of citizens in test and control jurisdictions to determine customer satisfaction with the test program versus current car regulation methods.
• Conducting cost/benefit analyses of the test and of the control jurisdictions' expenses and savings potential for both methods of car regulation.
• Taking advantage of changes in the way state and local governments conduct business by searching out possible "best practices" to institute throughout Virginia.

References

The Constitution of Virginia, effective July 1, 1971, with amendments.
Division of Legislative Services, A Legislator's Guide to Taxation in Virginia, Richmond, Va.: 1990.
Division of Legislative Services, A Legislator's Guide to Transportation in Virginia, Richmond, Va.: 1991.
Eggen, Dan, "Officials Finalizing Car Tax Overhaul; Board to Consider Reducing Decal Fees," The Washington Post, ("Prince William Extra"), June 21, 1998.
Gilmore, James, "No Car Tax: Making It Happen! Information Center," Governor Gilmore's website.
Mackey, Scott and Rafool, Mandy, "State and Local Value-Based Taxes on Motor Vehicles, "National Council of State Legislatures website .
Virginia Department of Motor Vehicles, "The Personal Property Tax Information Package" website.
Virginia Department of Motor Vehicles, "Study Coordination of Collection of Local Personal Property Taxes and Local Vehicle License Fees with the State Registration of Motor Vehicles," Senate Document No. 13, Richmond, Va.: 1994.

Patrick R. Mullen, a senior evaluator with the U.S. General Accounting Office, is a certified government financial manager. He has served on the staff of the National Academy of Public Administration and as deputy staff director of the National Advisory Commission on Law Enforcement.