End justifies the means for combined tax collections

Improved motor vehicle tax collection rates make 2012-13 budget costs worth the effort

By Stan Duncan
Henderson County Assessor & Tax Collector

At this time of year most folks are looking ahead to the holidays. County officials across the state, meanwhile, are contemplating their 2012-13 budgets. There's no question: The current economic malaise has county officials thinking about budgets 24/7.

If you are indeed one of these county officials – a commissioner, manager, finance officer, etc. – the following will bring you comfort, but not without some unexpected one-time costs. The additional costs will differ among the 100 counties depending on number of registered vehicles, staff size, existing software already in use, and the data environment unique to each county. Bear in mind, positive returns will start and go forward beginning with the 2013-14 fiscal year.

As most county officials may recall, the 2005 General Assembly passed H1779 (An Act to Create a Combined Motor Vehicle Registration Renewal and Property Tax Collection System). It provided for an additional 3 percent interest charge on delinquent motor vehicle tax bills beginning in January 2006. Those funds – collected locally and transferred to the state for covering the cost of the new software system – are yours. This legislation was supported by the NCACC and the combined state associations of County Assessors and Tax Collectors. Why? The system in place was not working very well.

Since 1993, property taxes on Registered Motor Vehicles (RMVs) were billed and became due four months after the initial purchase of a license tag or renewal sticker. If the tax was not paid within four months after the due date, a block was to be placed on the tag through the N.C. Division of Motor Vehicles (DMV) to prevent the vehicle owner from a future renewal unless the delinquent tax was paid. As a result, some folks waited to pay until they needed the license tag renewed. Others left town without ever paying the tax. And as one might expect, some owners simply found ways around the law.

Consequently, all 100 counties are losing significant revenues due them and the other taxing jurisdictions within their respective boundaries. Under the current law, the percentage of taxes collected on RMVs is significantly lower than any other tax base component. This is made worse when considering RMVs comprise a significant portion of the local tax base (see charts below).

Average 2009-10 Tax Collection Percentages
Population Grouping	Overall Excluding Motor Vehicles	Motor Vehicles
Statewide	97.91%	87.21%
100,000 and Above	98.36%	88.00%
50,000 to 99,999	97.09%	85.80%
25,000 to 49,999	96.46%	84.03%
24,999 and Below	95.52%	84.54%

Source: Memorandum #2011-14, revised May 19, 2011, from Sharon Edmundson, Director, Fiscal Management Section, North Carolina Department of State Treasurer; State and Local Government Finance Division and the Local Government Commission.

Statewide Averages of Tax Collection Percentages Over Time
Fiscal Years	Overall Excluding Motor Vehicles	Motor Vehicles
2009-10	97.91%	87.21%
2008-09	97.91%	86.95%
2007-08	98.64%	86.27%
2006-07	98.36%	88.30%
2005-06	97.63%	87.23%
2004-05	98.02%	87.66%
2003-04	97.78%	86.69%
2002-03	97.43%	86.76%
2001-02	98.08%	87.49%
2000-01	98.18%	86.96%
1999-00	97.81%	87.22%
1998-99	97.90%	87.67%

Source: Memorandums from the North Carolina Department of State Treasurer; State and Local Government Finance Division and the Local Government Commission, Fiscal Management Section.

As recently as May 2011, David Baker, director of the N.C. Department of Revenue's Local Government Division, reported that only about 60 percent of RMV taxes are paid on time. The eventual collection percentages reported by the N.C. State Treasurer's Office are the result of the block being applied, forcing the owner to pay the delinquent tax in order to renew the registration, and the additional months of pursuit by county staff assigned to delinquent collections. Nonetheless, despite these factors, Baker also reported that approximately $80 million in local vehicle taxes (county, municipal, fire district, etc.) remain uncollected at the end of each fiscal year.

Counties are now poised to correct the shortcomings of the current system and begin the process of collecting property taxes when motor vehicles are initially registered and upon their subsequent registration renewal. Vehicle owners will pay the license fee and the applicable property taxes at one time – one stop, one payment. Buy a tag and pay the taxes, all at one time.

Ultimately, the goal of implementing H1779 is to achieve a 100 percent collection rate on all RMVs. The good news is that all taxing jurisdictions – counties, municipalities, fire districts, special districts – should begin to see an increase in revenues beginning July 1, 2013. The not-so-good news is coming to grips with the potential costs associated with preparing county tax offices for this change.

As stated above, the effective date of implementing the new system is July 1, 2013. Most of the preparations at the local level will occur during the 2012-13 fiscal year. All of which brings us full circle to the budget considerations currently at the forefront of county officials.

While the development costs for the project are being funded by the extra interest charged on the first month of delinquency for a motor vehicle tax bill, any additional costs for the eventual implementation are to be borne by the county. The following represents a few of the possible additional costs that need to be accounted for in the 2012-13 budget for each county tax department:

• Likely overtime or additional staffing required from March-August 2013, when counties will be processing RMV tax bills under their legacy systems in addition to the new Vehicle Tax System (VTS). This dual processing will ensure the new VTS is working as expected. As a practical matter, counties are encouraged to maintain their existing system currently in place at least through January 2014.
• Likely costs expected to ensure the new VTS can communicate with the county's existing finance software system. This interface is critical to the ability of each county to track payments and monies received and produce an audit trail for possible refunds.
• Additional travel required for front-line and supervisory staff to attend regional training sessions. Presently, the training sessions are planned for January and February 2013, which coincides with two of the busiest periods for county tax departments: the annual January Listing Period on the assessment side, and the final five days to pay 2012 taxes at par in the collections offices.
• If not already under way, every county should focus on improving their mailing address and physical location (situs) addresses. The physical location where a vehicle should be taxed may not always be the same taxing jurisdiction as indicated by the mailing address. Historically, DMV has experienced a high rate of undeliverable mail associated with its initial mailing of what it refers to as "an invitation to renew" (a license plate registration notice to the rest of us). Generally speaking, counties have better mailing address data than DMV and the expertise available to determine the better address for mailing or assigning the appropriate taxing jurisdiction.
• Cleanup of existing data in the current software system. Plans currently call for the migration of data from the prior year, including note fields where county staff may have entered a wide range of information. All counties would be well-served to clean up as much of that random data as possible.
• And last, but certainly not least, counties are encouraged to pursue the delinquent RMV taxes as vigorously as possible. Once H1779 is implemented, the block concept that is currently in place will go away. Pursuit of those taxes via the block, or reliance on the block to force the owner to pay, will not be available.

As with any change to an existing revenue program, there remain some details to work out, but counties and their respective taxing jurisdictions will most likely see collection percentages in excess of 99 percent and closely approaching 100 percent for registered motor vehicles.

In 1974, I attended a regional tax meeting in Moore County. The featured speaker was Doug Holbrook, director of what was then the Ad Valorem Tax Division of the N.C. Department of Revenue. His presentation focused solely on the need to improve the then current method by which vehicle owners were required to list their motor vehicles annually during the January Listing Period. Under that system, all motor vehicle taxes were billed along with all other property with the taxes due in September. There were issues of compliance; discoveries were common late in the calendar year, which in turn became collection problems. In 1993, almost 20 years hence, our current system was put into place, with the acknowledgment that it was not the ideal system but the best improvement that could be achieved at the time.

Presently, a number of assessment and collections personnel from across the state are actively involved in bringing this long-awaited project to a successful implementation. They are working alongside representatives from the N.C. Department of Revenue and Department of Transportation, particularly DMV. The following four individuals are available for you to contact with questions/concerns:

• David B. Baker, director of the Local Government Division, DOR, (919) 733-7711 or david.baker@dornc.com. Member of the Joint Steering Committee; chair of the DOR Business Processes.
• Pete Rodda, retired Forsyth County assessor and tax collector, (336) 978-6947 or warodda@ncdot.gov. Member of the N.C. Core Team and Project Team as a subject matter expert in property tax.
• Pat Goddard, Johnston County tax administrator, (919) 989-5130 or pat.goddard@johnstonnc.com. Member of the Joint Steering Committee representing the NCACC, and N.C. Core Team as a subject matter expert in property tax.
• Stan Duncan, Henderson County assessor and tax collector, (828) 697-4870 or sduncan@hendersoncountync.org. Member of the RFP Evaluation Committee representing the N.C. Association of Assessing Officers.

While July 2013 may seem a distant future, the continuing preparations require counties to be adequately staffed during the six-month transition period beginning in early 2013. Yes, there are some costs associated with the preparations each county will need to meet. But these are short-term costs with long-term benefits.

With the full implementation of H1779 in July 2013, assessment and collection personnel will reap the benefits of perseverance, the proof of which will reside in county coffers. The more prepared each county is for the change, the better their respective results will be.