Sunday, August 15, 2010

FAQ on Wheel Tax or LOHUT

Is this another possible way to pay for our roads?

Wheel Tax or LOHUT Frequently Asked Questions

What is the LOHUT?

LOHUT is an acronym that stands for Local Option Highway User Tax. It was coined by the staff of the Indiana LTAP Center to minimize confusion over what is commonly referred to as the “wheel tax.” In actuality, the wheel tax is one of two taxes that must be levied together as a pair. The other is the “excise surtax.” Each of the taxes apply to different types of vehicles, so no one would ever pay both taxes on the same vehicle, but almost everyone would pay one or the other on any vehicle.

What is the difference between the “wheel tax” and the “excise surtax”?

The excise surtax only applies to passenger cars, light trucks (less than #11,000), and motorcycles. The wheel tax applies to everything else that is not considered exempt.

What is considered exempt?

Very little. The Indiana Code allows an exemption only for vehicles owned by the state or any state agency, political subdivisions of the state (such as counties, cities, towns, school districts, etc.), and some types of buses, including church buses, school buses, and buses owned and operated by a religious or nonprofit youth organization.

How much are the taxes?

It depends. The fiscal body of the county must decide how they want to enact the tax. The excise surtax can be imposed either as a percentage of the excise tax or as a flat fee. The percentage can be as low as 2% or as high as 10% of the excise tax, but never less than $7.50. The excise tax used is the excise tax before the state cut excise taxes by 50% several years ago. If the flat fee option is selected, the fee can range from as low as $7.50 to as high as $25.00. The wheel tax can range from as low as $5.00 to as high as $40.00. The wheel tax rate can also be varied among different types of vehicles and even within different weight classes within the same type of vehicle.

How much will it generate for my county to build and maintain roads and streets?

That depends on the number and type of vehicles registered in the county, and the rates at which the county council impose the taxes. The LOHUT generates over $14 million per year for Marion County (cy 2004) because of the large number of vehicles located in that county. Smaller counties would obviously generate a lot less. For an estimate of the potential revenue for your county, contact the Indiana LTAP Center and a projection can be made based on the most recent information available from the Bureau of Motor Vehicles. A sample printout from the LTAP software is shown on the opposite page.

How much does the Bureau of Motor Vehicles keep for collecting the tax?

The BMV charges are only 15 ¢ per transaction. Most people feel that this is a very low percentage of a fee that could be as high as $40.00. This is good for the local agencies because it leaves a higher percentage to be distributed locally.

How is the tax distributed?

The proceeds of the LOHUT, after the BMV fees, are distributed to the county and all of the cities and towns within the county. They are allocated based on the same formula used to distribute Local Road and Street funds. That means, for counties with a population of more than 50,000, that 60% of the money is based on relative population and 40% of the money is distributed based on relative mileage. For counties with a population of less than 50,000, 20% of the money is based on relative population and 80% of the money is distributed based on relative mileage.

Is it a “fair tax?”

Some people think it is, others do not. It is fair in the respect that the only people that pay it are the people that license their vehicles and use the roadways. Also, all of the money generated in the county stays in the county, save the BMV fees. It can also be fair in that a higher fee can be charged to heavy trucks that cause more damage to roads that lighter vehicles. It can be unfair in that the tax may not be proportional to use, like a gasoline tax would be. Everyone that buys a license plate will be charged the same rate, regardless of how often they use it.

Why don’t we just increase the gasoline tax?

Granted, the gasoline tax is a more proportional tax, but increasing it above current levels is up to state, not local authorities. Efforts have been in place for years with little success in increasing the gasoline tax, especially for local units of government. Furthermore, it can be shown that the LOHUT, imposed at average rates, will generate nearly twice as much money for a county than a four cent increase in the state gasoline tax. This is true even with the assumption that the increase is shared equally (ie., two cents to the state and two cents to local units), which is a larger share than local units have received in the past.

How many other counties have enacted it?

The tax has been available since 1980. Since its inception, forty-three counties have imposed the tax. Many of those have taken that action in just the last several years, since the special distribution from the state general fund was discontinued. The map shown below identifies the counties that have enacted the tax.

What can we use the money for?

The statutes allow the LOHUT funds to be used only to “construct, reconstruct, repair, or maintain streets and roads under its jurisdiction.” The funds may also be used to establish a “multiple county infrastructure authority.”

Will I have to pay the tax on my farm equipment?

This is a very commonly asked question, so we posed it directly to the BMV. The response was that the statutes allow for rates to be varied for different classes of vehicles and for various weights within a class, but has no provision for different rates based on use (ie., farm vs. commercial). So the answer is that there is no exemption for agricultural vehicles.

Will I have to pay on the school bus I own?

The wheel tax does apply to buses, but in the definition of a bus (IC 9-13-2-17) it clearly states “the term (bus) does not include school buses, or motor vehicles that are funeral equipment and that are used in the operation of the funeral business.”
Are apportioned vehicles subject to the tax?

Apportioned vehicles (vehicles that cross state lines and are subject to the International Registration Plan) must pay wheel taxes if the carrier’s business address is located in a wheel tax county.

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