Sticker shock: how Nebraska vehicle and wheel taxes work

Sticker shock: how Nebraska vehicle and wheel taxes work

A couple years ago, I listened in on the first legislative hearing to discuss whether ridesharing apps like Uber and Lyft should be subject to sales tax in Nebraska (currently, they are not). As much as I love ridesharing, I thought the industry’s argument for being exempt was a stretch.

They said ridesharing shouldn’t be taxed since hailing a ride was a necessity for many customers.

It made me wonder if people waiting in line at the county treasurer to pay their sales and motor vehicle taxes didn’t think they were being taxed on a necessity, too.

The car or motor vehicle tax in Nebraska can be overwhelming since they are actually several taxes rolled together to pay for one very expensive little sticker on your license plate.

Registering a recently-purchased vehicle will involve paying state and local sales tax, in addition to registration and possible plate fees. While the sales tax is a one-time event, another potentially large tax you will have to pay every year is the Motor Vehicle Tax, which is like a personal property tax.

The taxable value of your vehicle is based on its age and the original MSRP. However, the money you pay doesn’t go to as many local governments as other property taxes.

Nor, surprisingly, does most of the tax go to roads. In fact, 60% of the motor vehicle tax goes to your local school district. Most of the remainder is sent to your county or city, depending on where you live.

Driving an older, cheaper vehicle is one of the only ways to lighten the load on this annual part of the tax since vehicles are fully depreciated at 14 years and then owe no motor vehicle tax for the rest of their operable life.

As for the Wheel Tax, there’s no getting away from it when you register your vehicle if you live in a city or county that opts to levy one. Omaha and Lincoln’s wheel taxes are both greater than the state’s annual vehicle registration fees for all vehicle types, which everyone pays for the life of their vehicle.

Taxpayers in Grand Island disliked paying their annual Wheel Tax enough that they voted to approve a higher local sales tax as a replacement, while residents in rural parts of Lancaster County have so far succeeded in preventing the county from implementing a Wheel Tax similar to the one paid by their neighbors in Lincoln.

Many taxpayers resent the annual experience of paying the motor vehicle tax and the wheel tax, since it comes in a larger sum than most other taxes, and it can especially feel like a double-whammy after paying already-high taxes on a home or other property.

While there has been some resistance to the Wheel Tax, it’s unlikely that there would be an easy way to make major cuts to vehicle taxes. After all, school districts already feel they do not receive enough other funding from the state, and cities and counties would say a reduction would cut off a tool they use to fund a core government service like roads.

These political subdivisions also rely heavily on property or sales taxes and would argue that without vehicle revenues, they would have to lean on those taxes even more.

If there’s any silver lining to motor vehicle taxes, it’s that with a little homework, Nebraskans can at least anticipate the taxes for owning their vehicle over its lifetime, and the state does provide a good tool for estimating the initial taxes owed. But vehicle taxes in Nebraska still appear to be another example where a promised alternative to real property taxes ends up being a costly addition to them.

Here are some examples of estimated vehicle tax bills using the Nebraska DMV’s website. It should be noted, these are prices selected from online listings, and none take into account a possible impact on the sale price due to trade-ins.

In Nebraska, the sales tax due is reduced if your vehicle purchase is credited with a trade.

Let’s start with what a bill would look like if someone living in Omaha bought a new pickup truck.

Regardless of whether the vehicle is new or used, the buyer will have to pay sales tax, and Omaha has a local sales tax in addition to the state. This vehicle owner will also need to buy new license plates and pay Omaha’s wheel tax. Because this truck’s MSRP is about $40,000, the first year of motor vehicle tax is $700. Next year, there will be no sales tax due, while the motor vehicle tax will decline to $630.

If the same truck was registered outside the city limits in York County, which has no wheel tax and no local sales tax, the bill would look like this:

Now, let’s look at another large vehicle, but one that’s used.

Grand Island has a higher local sales tax than Omaha but doesn’t assess a wheel tax. Because this driver chose to buy a used vehicle with a much lower sticker price, their sales tax bill is less than half of what the buyer of the new truck paid in Omaha. However, because this is a relatively recent model year, the motor vehicle tax is still being assessed. The new truck in our last example paid $700 in its first year, while this vehicle is charged $322 in its fourth year. Based on its original MSRP, the annual tax was $460 when it was new.

Here’s what this driver’s renewal would look like next year once their sales tax was paid and their motor vehicle tax declined:

Finally, here’s an example of a cheaper, used car, although not an economy vehicle by any standard. The 2007 Toyota Avalon had an MSRP of $34,000 when it was new. But if you found this vehicle today for $6,999, you would not owe any motor vehicle tax due to its age. However, if this used car is new to you, you’d still owe sales tax when registering it the first time. Here’s how that transaction would look for an owner in Lincoln.

If you were renewing this vehicle in Lincoln after years of ownership, though, the local wheel tax and state fees are all you would have to pay.

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