Oklahoma Lawmakers Explore Unfair Excise Taxes on Used Vehicle Purchases

Lawmakers in Oklahoma City delved into the issue of excise taxes on used vehicle purchases last week, uncovering stories of unsuspecting buyers who were hit with unexpectedly high tax bills. Individuals who purchased used cars or trucks at significantly lower prices than the market average found themselves paying taxes based on inflated valuations. Joe McAlester of Wilburton shared his experience of buying a used pickup truck for under $5,000 in an online auction, only to be taxed based on a $12,000 valuation. McAlester’s neighbors faced similar situations after purchasing vehicles in poor condition at below-market prices.

Previously, the excise tax was calculated based on the self-reported purchase price. However, the state deemed this method unreliable, particularly when vehicles changed hands between individuals. To address this, a law was passed that bases excise taxes on average retail prices determined by J.D. Power, a company utilizing artificial intelligence and other tools. By submitting the vehicle identification number (VIN) to J.D. Power, the state receives the average retail price for that specific vehicle.

The excise tax bill is not solely tied to the average price. The state allows a 20% margin, either above or below the average, to determine the tax amount. If the reported purchase price falls within this range, the state assesses the 3.25% charge based on the actual purchase price. However, if the reported purchase price deviates more than 20% from the average, the tax bill is affected. For instance, if the average price of a vehicle is $10,000, but it was purchased for $6,000, the excise tax charged would reflect a purchase price of $8,000, 20% below the average.

In the last fiscal year, approximately 55% of purchases fell within the 20% margin, while 30% were adjusted upward and 15% were adjusted downward. Adjustments were made by around $4,000 for both categories. During the recent legislative session, House Bill 3185 proposed expanding the margin to 40% for vehicles with an odometer reading of over 100,000 miles and 50% for those with over 200,000 miles. However, the bill failed to pass.

Representative Jim Grego, who proposed the interim study, believes lawmakers should revisit the issue, as the current system disadvantages certain groups, such as farmers and ranchers who often purchase high-mileage or maintenance-heavy vehicles. Grego suggests that with the advent of electronic titles, where prices are listed, it is now easier to determine what someone pays, making it an opportune time to explore a more equitable approach.

It is important to note that Oklahoma also imposes a 1.25% sales tax based on the purchase price of a vehicle. Although not discussed during the interim study, legislation has been proposed to eliminate this sales tax.