Beginning Tuesday September 1, 2009, Kentucky taxpayers will receive trade-in credit for vehicles offered in trade when purchasing new motor vehicles. During the special legislative session in June, House leaders added the tax break to spur new car sales. Speaker of the House Greg Stumbo, was the driving force behind including the tax break in the economic stimulus package known as House Bill 3.

For years car buyers have had to pay a 6 percent usage tax on the purchase of new cars. Starting in September, car buyers trading in a vehicle would pay tax on the difference between the new and used car value. The tax credit will only be available for one year or until the 25 million dollars allotted for the credit runs out.

It has been an unprecedented time in the auto industry with manufacturer bankruptcies and dealership reductions. Our legislators in Kentucky recognized the dire conditions of the economic situation and acted quickly to provide assistance to the industry. With Kentucky ranking third in auto production, stronger new vehicle sales will help keep people employed at auto manufacturers, dealers and suppliers in local communities all across Kentucky. Keeping people employed results in additional tax receipts for both local and state government in the form of payroll taxes, sales tax, usage tax, corporate tax, property tax and other taxes.

Allowing trade-in credit not only helps the economic conditions in Kentucky but also helps keep vehicles registered in Kentucky and Kentucky tax dollars at home. Kentucky is currently one of only six states that do not allow trade-in credit on new vehicle purchases. All of our surrounding states allow trade-in credit except Virginia. However Virginia’s tax rate is only 3 percent. Kentucky has had a problem for years with vehicles being registered out of state that should be registered in Kentucky. Not allowing trade-in credit in Kentucky is a primary reason why Kentucky residents improperly register vehicles out of state. Allowing trade-in credit will keep Kentucky road fund dollars in Kentucky and Kentucky property tax dollars in every local community across the state.

Allowing trade-in credit will be a stimulus for the consumer to purchase a new vehicle and help auto manufacturers, suppliers and dealers in the process, and contribute to the overall economic growth in Kentucky. Kentucky citizens’ should thank their state senator and representative for including this measure in the economic stimulus bill passed during this special session. Kentucky taxpayers should not have to pay tax on money they don’t spend. Allowing trade-in credit is the right thing to do and should be made permanent during the upcoming legislative session in January.