The Incidence of the California Vehicle License Fee

Since 1935, the Vehicle License Fee (VLF) has been assessed on all privately owned registered vehicles in California. It is a property tax currently set at 2% of a vehicle’s value, based upon its most recent purchase price and a fixed depreciation schedule. The Legislative Analyst’s Office has estimated that the VLF, if unchanged, would have raised approximately $3.9 billion in the 1998-99 fiscal year. In light of the current fiscal surplus, the Legislature recently reduced the VLF by 25%, with possible additional reductions in future years. Because little information is available on who will benefit from this change, the Senate Office of Research asked the California Policy Research Center and the Institute of Urban and Regional Development at the University of California, Berkeley, to prepare this analysis of the incidence of the VLF. In this report, we examine the relative payments of households having different income levels, races, and locations; payments from businesses; and the relationship between the VLF and “Blue Book” vehicle values. The Department of Motor Vehicles does not collect all of the data necessary for this analysis, such as household income. Therefore, the analysis of VLF payments by California households is based on data from the 1995 Nationwide Personal Transportation Survey. This survey included detailed data on over 2,000 California households with over 4,000 vehicles. For each vehicle, an estimated purchase price was obtained from the Kelley Blue Book and the VLF calculated. The analysis of VLF payments by California businesses is based on a California Energy Commission database that identifies commercial and governmental fleets from the vehicles registered with the Department of Motor Vehicles. The methodology is described in detail later in this report. The VLF is only one of several different taxes and fees that vehicle owners pay to the state government. These other assessments, including registration fees, sales taxes, gasoline taxes, and special interest or personalized license plate fees, are beyond the scope of this study.