Municipal organizations say out-of-state registrations are costing their municipalities millions in lost revenue that could otherwise be directed towards education, infrastructure and public services. Adding fuel to the fire, some states like Maine and Montana allow vehicle registrations from owners who live out of state, making the process easy for drivers.
Both city and state officials are looking to turn the tide of this growing trend, but there are physical, financial and political barriers to reform.
According to Connecticut state law, residents have 90 days to register their car before facing penalties of up to $1,000, though it can vary between municipalities. While it’s difficult to quantify the exact amount lost to those who fail to register, Chaponis estimates if even three percent of drivers make up those with out-of-state plates, the state is missing out on as much as $30 million each year.
“That doesn’t take into consideration all the other fees that get lost as well,” Chaponis says, “the state’s losing registration renewal and emission fees, parking tickets go uncollected, Connecticut businesses are losing out as well, some of these vehicles are purchasing their insurance from Maine, because it’s cheaper, taking business away from Connecticut insurance agents,” he said in transportation committee testimony.
Despite a law against out-of-state plates, enforcement has been a consistent problem. “Enforcing motor vehicle registration laws are kind of at the bottom of the list [for law enforcement],” points out Andrew Schilkowski who works for Municipal Tax Services, a private company that works with municipalities to recover delinquent motor vehicle tax revenue.
“It’s kind of crazy that we have this massive problem that could generate millions of dollars for the state and they’re just overlooking it,” said Jennifer Lineaweaver, the Stonington tax assessor. “If they [the police] could enforce it, that would be more effective than something an assessor could do,” she added.
Motor vehicle registration was first required by Connecticut in 1903. Just over two decades later, according to a study from 1934, tax evasion was already a problem. “Perhaps the most important cause of collection trouble, however, is the practice of owners in registering motor vehicles as residents of town’s other than those of residence at the time taxes are due. This may be done with intent to evade the tax or by inadvertence,” the report stated.
By 1940, as a means to address problematic areas of motor vehicle tax collection, the annual state assessors went on record “favoring the collection of motor vehicle taxes by the State Motor Vehicle Department,” according to a report from the Connecticut Association for Assessing Officers (CAOO). Centralizing the collection of taxes with a standardized taxation rate across the state with reimbursements to each municipality has been discussed since at least 1917, but something the state has rarely engaged in. Even then, back in 1940, the state bypassed the state assessors’ recommendation and continued to let each municipality handle their own collection.
In 1980, the Stonington Assessor, Francis Callahan wrote about taxpayers finding loopholes to Connecticut law around vehicle taxation, specifically within military circles: “Service personnel who own real estate in Connecticut, plan to retire and make Connecticut their home…will claim residency in another State in order to avoid payment of personal property and motor vehicle taxes.”
In New London, shopping for lower tax rates in the neighboring municipality was an issue for the town. James Ramos, who became Waterford’s tax assessor in 1985, recounted what he experienced in the CAAO report, “A typical car with a $10,000 assessment in Waterford would pay $80 in motor vehicle taxes. The same vehicle in New London would pay about $800. Many New London taxpayers would register their vehicles at relative’s homes in Waterford to be beneficiaries of the lower mill rate.”
A few years later, the Connecticut legislature was close to eliminating the motor vehicle tax, Ramos said. In 1988, PriceWaterhouseCoopers drafted a report on the state of motor vehicle taxation in Connecticut and said that local taxation of vehicles was “a major source of tax shifting” and “a significant drain on the resources of local assessors.”
But, Ramos adds, “In 1989, the economy went bad and the legislature decided that they couldn’t afford to lose any source of revenue.”
Furthermore, no action was taken on subsequent bills to eliminate the motor vehicle tax proposed in 2000, 2001 and 2003 according to a legislative report on motor vehicle taxes.
By 2006, Bridgeport, facing millions of unpaid motor vehicle taxes, took strong action and not only started towing cars until taxes were paid, local officials also sent more than 120,000 warrants for people with unpaid car taxes to area banking institutions requesting they freeze the assets of those in arrears.
Ultimately, “It’s a form of taxation that has a lot of inherent. problems,” said Charles Agli, former president of the CAAO, “motor vehicles are a complex item to collect tax on, it’s probably the most difficult to collect.” Cars are not stationary, like real estate, he explained, “Motor vehicles are the most mobile form of property so they can be moved around, registered here and there, and there’s a lot of manipulation to try and beat the system,” he added.
Chaponis has been a tax assessor for decades and of all the ways in which he’s seen people avoid taxes, it’s the residents who take time to research and put effort into registering their car out of state with the myriad of companies that exist to help drivers avoid taxation in their home state that frustrate him most.
“We need some type of teeth where we can start to at least slow this down,” he said in testimony to the Planning and Development Committee last year. “We’re on the front lines where people are walking into our office saying this isn’t fair, they’ve got this, they’re not getting taxed.”
In Montana, where tax rates are low, there are law firms and other companies that advertise vehicle registration within the process of setting up a limited liability company. One firm proclaims, “as a non-resident of Montana, you may be able to avoid paying sales tax, personal property tax and high licensing fees upon the purchase of your new high-performance car, boat, airplane or RV. A simple legal procedure is involved which, in most cases, helps clients save a great deal of money on taxes and licensing fees through creating a Montana LLC.”
In Maine, an LLC is not required to register a vehicle in the state. It’s one of the few states where the law does not require a registrant to prove residency according to Chaponis. Accordingly, the amount of Connecticut residents who register their car in the Pine Tree State has grown over the years. Just last year the state registered 4,745 vehicles with Connecticut addresses. In the planning and development testimony Chaponis provided last year, he points out that, “the state of Maine has seen registrations more than double in the last 5 years with out of state addresses…going from 7,500 to 17,000.”
For all the drivers who’ve moved to Connecticut, but fail to register, there’s no way for the DMV to track that number, “In terms of knowing who moves into our state, there’s no repository,” says Shaun Formica, Director of Communications for Connecticut’s DMV.
Chaponis, who has been addressing this problem since the 1990s is recognized by his peers as one of the most knowledgeable people working on this issue. “He’s the living wonk on all of this stuff,” according to Randall Collins, the advocacy manager at the Connecticut Conference of Municipalities (CCM).
Chaponis’ first assessor job was in New Jersey in 1988, until he returned to Connecticut and became the Colchester tax assessor in 1992. He is also the legislative chairman for CAAO.
“I just take it really seriously,” he says about his strong work ethic and his eye for ensuring equity in taxation. “You’re either part of the problem or part of the solution,” he adds. He’s been a union steward for 30 years and in that time he’s never filed a grievance, “we’ve always worked things out,” which could explain his dedication to working on this issue.
Chaponis still has a letter dated 1996 from the DMV informing him of the drivers in his municipality that were non-compliant in registering their car. “Years ago when the DMV had a registration compliance unit that was working on it, that’s how these things were getting addressed,” he said in the planning and development committee testimony. The compliance unit would write to an assessor, informing them they had received information on a motor vehicle with out-of-state plates that were found within their town and include the letter they mailed to the driver. They would also inform the assessor that the local police department could act on the information and issue an infraction complaint.
While the DMV still has a registration compliance unit, it is no longer engaged in tracking motor vehicles with out-of-state plates, as it once did. “This is not a DMV enforcement issue; there isn’t a centralized database or way for DMV to enforce the rules for transferring your registration or driver’s license once establishing residency in Connecticut,” the DMV’s director of communications, Shaun Formica clarified.
These days, if municipalities want to recover this tax revenue, it usually falls upon the assessors, or the municipality can hire an outside company. “The amount of work that’s going into this is taking us away from looking at personal property declarations, and doing audits and finding real estate,” Chaponis said in his testimony.
Over the years, Chaponis has gotten creative in finding ways to track Colchester residents who don’t pay tax on their cars – he once hired a criminal justice student whose job it was to collect out-of-state plate numbers, take pictures and document the location of their car over time, run various background checks to verify residence data and keep track of it all to provide the necessary information for which Chaponis could take action.
In one recent state-wide initiative to address the problem of out-of-state plates, the legislature approved the formation of a task force meant to study the issue and put forth recommendations. In public act 19-119, Chaponis explains in the planning and development committee testimony, “it put law enforcement, DMV officials and assessors all on the task force to sit down and try and talk about the problem and create a mechanism that maybe would help further, but unfortunately all of the appointments were not made and the task force never met and missed their deadline to turn out a report.”
A similar act, 21-106, also proposed a task force, but again, it was never fully staffed and couldn’t move forward.
In one of the more recent pushes to eliminate motor vehicle taxes, then Governor M. Jodi Rell proposed a measure in 2007 that would have replaced the revenue with money generated by Connecticut’s casinos. Later iterations of the bill evolved following criticism and concern over the state’s ability to reimburse towns for their share of tax revenue. A revised plan called for taxation for cars worth more than $30,000.
“You can own any make, model, or year car and if the fair market value is $30,000 or less the tax is eliminated,” Governor Rell said in a press release from 2007.
Ultimately, the tax wasn’t eliminated, due to pushback from local officials who weren’t convinced the state would be able to maintain consistency in disbursing revenue to each municipality in times of budgetary constraint. “It’s happened time and time again, where there’s a property tax exemption and then the state intends to fund it…then during difficult budgetary years, all of a sudden those reimbursements are depleted and they disappear,” says Betsy Gara, executive director of the Connecticut Council of Small Towns (COST).
“No one likes car taxes, we get it,” says Randall Collins of CCM. “Municipalities are over-reliant on property taxes, it’s one of the few revenues we have so when we talk about changes to car taxes, it’s a billion in local revenue so it’s a very sensitive topic to discuss.” If the taxes were eliminated, Collins says, it would just fall to homeowners and commercial businesses, so, the state, “tinkers with it, but they don’t,” he adds, highlighting the delicate navigation required of lawmakers.
Gara represents the smaller municipalities in the state which see property taxes as a big concern. “Towns heavily rely on property taxes to fund the delivery of critical services including education, public safety and public health and it’s frustrating when people skip out on paying their taxes by not registering their vehicles or register them out of state,” Gara says.
The regionalization of services is one way forward that Collins and others have discussed as a means to consolidate expenses across towns to bring the tax burden down. Last year, lawmakers approved an amendment that would make regionalization easier for municipalities to adopt. “We’ve issued report after report, I’ve got a whole shelf of them, that talk about different ideas of how to address the property tax burden,” Collins said. In 2017, the CCM issued a report titled This Report Is Different. “It recommended changes on reducing reliance on the property tax, a revenue diversification, but it also talked about additional regionalization of services to promote efficiencies,” Collins said.
Ultimately this gridlock, “comes up every year,” he says. “At a minimum, do the task force,” Collins urged.
Perhaps one of the biggest boons to delivering delinquent tax revenue back to municipalities is Municipal Tax Services (MTS). It was founded in 2005 by Carl DeProfio, a retired detective from the Connecticut State Police, and its sole mission is to investigate tax assessment discrepancies within the state. To date, they’ve been contracted by Bethel, Bridgeport, Danbury, Hamden, Hartford, New Haven, New Milford, North Haven, Stamford, Stratford, West Haven and Waterbury. Currently, they’re running investigations in Bethel, New Milford, Stamford and Waterbury. In total, they’ve identified over 69,000 vehicles for taxation which combined, have been assessed at over $783 million.
In what has been one of their biggest successes for recovering revenue – the town of Waterbury has collected over a million in taxes from residents who failed to register their car thanks to the data MTS collected.
The actual data collection process is intensive. Agents will drive each and every street of a municipality, multiple times, recording each plate that’s observed through SecureWatch24 (a patented dashboard-mounted camera system), capturing time, date, and GPS location of the car. Infrared lenses capture data during nighttime hours. For long driveways and cars parked far from eyeshot, the agent will use binoculars and enter data manually. Next, they’ll verify the data that’s collected, compare it to the motor vehicle grand list, property records from the municipality, voting records, DMV records from Connecticut and New York and other databases to determine if there is a tie to that municipality. In the event there is no tie, they’ll wait and observe whether they see the car over a period of time, “The owner may not live there, maybe it’s someone at school, a kid driving mom’s car,” Schilkowski points out. If there’s a match, a letter of inquiry goes out to the registrant indicating a tax liability to the city.
When that tax is finally paid, MTS gets paid. “The income we receive is from the taxes and interest that is collected on the motor vehicles that we identify,” Schilkowski says. MTS takes a percentage of what’s collected, which varies depending on the amount of work required. “We stress with everyone, the only [up-front] costs that are associated with our services is mailing out the tax bills, mailing out letters from the assessor’s office…but that’s it,” adds Schilkowski.
While MTS has been able to deliver sizable sums of revenue for towns across the state, their contracts last only as long as the local administration views them as providing a valuable service. The momentum to drive a municipality to reach out to MTS can come from residents when, “there’s enough of them to cause a ruckus essentially – then that’s when the administration will look into our services. Other than that it’s revenue based,” Schilkowski says, when towns come up short in their budget.
For example, in 2015 when Connecticut enacted a cap of 29 mills to decrease the motor vehicle tax burden on residents, it didn’t last long. For municipalities whose mill rates were higher than the cap, the state was due to reimburse them for the remainder, but just one year later, the state raised the mill rate to 37 to deal with a $1 billion budget deficit.
The DMV is central in being a participant in finding better ways to recover lost tax revenue. Whether or not there will be funding to return the Registration Compliance Unit to its former capacity in which it received information on motor vehicles with out-of-state plates and informed local assessors remains to be seen.
“I can’t speak to the capacity of the DMV and their ability to do this, but I think…if we had one person…that would do this [track delinquent plates]….when you look at the cost-benefit how many vehicles are you going to capture, with those registration fees, the emission fees, that are associated with these registrations, it generates X number of dollars, does that offset the loss of increased personnel?” Randy Collins from CCM asks. “That idea is sitting down and bringing all the stakeholders together to understand what are the solutions and what are the costs,” he adds.
At the same time, could MTS bid for a state-wide contract and provide their services to the entire state? “In my personal opinion, it wouldn’t be impossible,” Schilkowski says. “It would just be a matter of expanding the workforce,” he adds. “The only issue would be how the state would recover any money from their efforts,” he continues. While the taxes they recover would go to local municipalities, there’s still a question of how much the state’s cut might be.
Ultimately, it seems one solution many officials agree on is increasing the variety of state and local funding streams. “We need to look at ways of diversifying the revenue source so that towns aren’t completely dependent on the property tax to fund local services, and part of that means additional state aid, but also exploring opportunities to provide municipalities with other mechanisms for raising revenue,” asserts COST’s Betsy Gara.