Lawmakers in Oklahoma City recently delved into the issue of excise taxes charged on used vehicle purchases, shedding light on the surprising tax bills faced by individuals who bought vehicles at significantly lower prices. Stories emerged of buyers who acquired damaged, high-mileage, or worn-out vehicles well below market average, only to be hit with substantial tax payments to the state. Joe McAlester of Wilburton shared his experience of purchasing a used pickup truck through an online auction for under $5,000, but later being taxed based on a valuation of $12,000, subject to the state’s 3.25% excise tax.
The previous method of calculating excise taxes relied on buyers self-reporting the purchase price to the state. However, this approach lacked verification, particularly when vehicles changed hands between individuals. To address this issue, a law was enacted to base excise taxes on average retail prices of vehicles. J.D. Power, a company utilizing artificial intelligence and other tools, was enlisted by the state to determine average values and assist in determining tax bills.
The excise tax bill is not solely linked 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 price deviates more than 20% from the average, the tax bill is adjusted accordingly.
In the last fiscal year, approximately 55% of purchases fell within the 20% range of the average retail price, while 30% were below and 15% were above. 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 exceeding 200,000 miles. However, the bill failed to pass.
Rep. Jim Grego, who initiated the interim study, emphasized the need to reconsider the issue, particularly as the current system appears to disadvantage certain groups, such as farmers and ranchers who often purchase high-mileage or maintenance-challenged vehicles. Grego suggested that advancements in electronic titles, which include listed prices, present an opportunity to explore a more equitable approach.
It is worth noting that Oklahoma also imposes a 1.25% sales tax based on the purchase price of a vehicle. Although not discussed during the interim study, there have been proposals to eliminate this sales tax.