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Tax credit could save car buyers money

By Mike Wynn The Courier-Journal

FRANKFORT - New-car buyers could save hundreds of dollars by postponing vehicle purchases until a state tax credit takes effect next month.

Kentucky, under current law, collects a 6 percent motor vehicle usage tax based on the purchase price of new cars. But starting July 1, consumers can lower the tax by subtracting the value of a trade-in from the value of the new vehicle.

That could save the average buyer more than $600, state figures indicate.

The Courier-Journal left messages with eight dealerships in the Louisville area seeking comment, but only one returned phone calls.

Bob Hook, president of Bob Hook Chevrolet on Bardstown Road, said dealerships have long supported the change even though it puts them in an awkward position as they try to move inventory toward the end of the month.

"We feel very good about it because we feel like all our border states have a better deal going," Hook said. "Obviously, it is very consumer friendly."

Gay Williams, president of the Kentucky Automotive Dealers Association, said most states - including all those that surround Kentucky - already offer a similar tax credit, and dealers hope it will stimulate purchases in the commonwealth.

"It's really been a disincentive for people in the state of Kentucky to purchase new cars, because of the tax burden," she said. "We are catching up."

The state already offers a similar tax discount on purchases of used cars, and those who will gain the most from the new credit are consumers who trade in high-value, late model vehicles for new ones.

For example, someone who purchases a $25,000 car with a $10,000 trade-in will pay the usage tax only on the $15,000 difference, which decreases the tax burden from $1,500 to $900.

Kentucky offered the same tax break on a temporary basis in 2009, and consumers reaped the benefit in nearly 37,000 purchases, according to the state Department of Revenue.

Richard Dobson, executive director for the Office of Sales and Excise Taxes, said the average buyer received a $670 credit with a trade-in during the 2009 program, but the department does not have projections for the market this year.

Dominion Cross-Sell, an automotive market research firm based in Lexington, determined that new vehicle purchases climbed about 8 percent during the 2009 program.

Still, Shane Marcum, general manager for Cross-Sell, said it's hard to predict how the new tax relief will impact purchases since sale volume is heavily dependent on manufacturer incentives and seasonal factors.

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