Starting then, you will pay less in sales tax on a car purchase in Michigan because the value of your trade-in can be counted under a deal between lawmakers and Gov. Rick Snyder.
The Legislature began giving final approval to the gradual tax cut Tuesday, and the governor is expected to sign it after the effort had stalled for decades in Lansing.
In the first year, people will no longer pay Michigan's 6 percent sales tax on up to $2,000 of the value of their trade-in, for a savings of up to $120.
The trade-in value subtracted from the sales price will rise $500 a year, which equals an extra $30 tax break per year until it is fully phased in 25 years from now.
Legislators expect most car buyers to be able to credit the full value of their trade-in against the purchase price within six years. Boat buyers can immediately subtract the full value of their trade-in starting Dec. 15.
Michigan is among just six states to make car buyers pay sales tax on the full price without counting their trade-in, according to the Michigan Auto Dealers Association, which has pushed the legislation for years as a way to jumpstart sales. Critics say the existing law is a form of double taxation because buyers previously paid full sales tax on the vehicle they are trading in.
"I'm excited because we're giving something back to the average consumer," said Senate Majority Leader Randy Richardville, R-Monroe. "We're telling people that financially we're in good shape and we're going to share that wealth so to speak a little bit with the people who put the tax money here in Lansing to begin with."
Republicans and Democrats have backed measures to collect the sales tax on the difference in the past, but it has been stymied over concerns about lost tax revenue. The bills would reduce state tax revenue by roughly $20 million in the first year, a third of which is intended for schools. But down the line, the lost revenue would grow to a total of more than $200 million a year once fully phased in.
Michigan briefly allowed a trade-in allowance for new and used vehicles in 1984, but the tax break was ended because of budget problems.
The legislation states that if future lawmakers repeal the recent expansion of Medicaid to more low-income adults, the phase-in of the tax cut will be paused — a provision requested by Snyder's administration. House Speaker Jase Bolger, R-Marshall, said the budget agreement for current budget year included $20 million in tax relief.
The Senate voted 38-0 and the House 101-7 for one bill now headed to Snyder. Another bill was approved 99-9 by the House and is expected to receive final approval from the Senate on Wednesday.
Terry Burns, executive vice president of the auto dealers association, said Michigan customers often ask dealers why people in bordering Ohio, Indiana and Wisconsin get a sales tax reduction for their trade-in.
"This is a very major purchase for our customers," he said. "They will see the tax relief at the point of sale. They don't have any additional forms to fill out. There's no means test. There's nothing."