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Key Dealer-Related Highlights of Tax Reform Plan As Passed by the Senate

• Adjusts state sales tax by 0.5% (6% to 5.5%)

• Reduces state personal income tax rates 4.2% per year over five years

• Retains 0.9% vendor discount that was scheduled to decrease to .75% on 7/1/05

• For C-corps, plan phases out corporate franchise tax 20% per year over five years beginning in 2006

• For all structures (C-corps, S-corps, LLCs, etc.), plan phases out all three portions of the tangible personal property tax (business machinery & equipment, furniture & fixtures, and inventory) uniformly over four years beginning in 2006.  The new listing percentages will be as follows:

  o    Inventory (2005 – 23%; 2006 - 18.75%; 2007 – 12.5%; 2008 – 6.25%; 2009 – 0%)

  o    Furniture & Fixtures (2005 – 25%; 2006 – 18.75%; 2007 – 12.5%; 2008 – 6.25%; 2009 – 0%)

  o    Machinery & Equipment (2005 – 25%; 2006 – 18.75%; 2007 – 12.5%; 2008 – 6.25%; 2009 – 0%)

• Replaces corporate franchise tax and the TPP with a gross receipts or commercial activities tax (CAT) phased in over five years

o       CAT rate is 0.26%

o       First million in sales are basically exempt ($175 due)  

o       Out of state sales are exempt

o       Dealer trades are exempt

o       Phase-in of tax is as follows:

o       The tax becomes effective July 1, 2005.  In the first six months of the tax, the tax equals $88 on the first $500,000 in taxable gross receipts during that period, plus 0.06% on taxable gross receipts in excess of $500,000 during that period (this rate results from multiplying the permanent 0.26% rate by 23%, which is the initial phase-in percentage, then rounding to the nearest hundredth per cent.)  The return for that semiannual period must be filed no later than February 10, 2006.

o       In the first quarter of 2006, 23% of the tax as normally computed is payable; for the four quarters running from April 2006 to April 2007, 40% of the normal tax is due; for the four quarters running from April 2007 to April 2008, 60% of the normal tax is due: for the four quarters running from April 2008 to April 2009, 80% of the normal tax is due; from April 2009 on, the tax is payable on the basis of permanent computation of 0.26%

• Eliminates 10% tax rollback on Class II (commercial) real property

•  Increases the kilowatt hour tax on electric consumption by 30%

• Clarifies APV law for titling and dealer licensing purposes

• Makes numerous changes to the E-check program, including using funds from the Master Tobacco Settlement to pay for vehicle inspections