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The used car shortage will make some Virginians' personal property taxes go up

The car shortage has caused a domino effect, finally falling on Virginians' tax bills.
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ALEXANDRIA, Va. — Every year Virginians get a bill for their personal property taxes: a lump sum payment of tax on any cars, trucks, boats or other modes of personal transportation you own. 

Verify viewer Charlene emailed us saying she received a letter from the City of Alexandria saying property taxes will increase due to a shortage of used cars.

"I am trying to understand how a car purchased before the pandemic is affected by the used car shortage and in increase in property tax. Please verify if they can do this," Charlene asked. Let's verify.

THE QUESTION

How is the tax on a car purchased before the pandemic affected by a current used car shortage? Is the car shortage driving up personal property taxes in Northern Virginia?

THE SOURCES

  • Jason Fichtner, Vice President and Chief Economist at the Bipartisan Policy Center
  • City of Alexandria
  • Fairfax County

THE ANSWER

The used car shortage has caused about 10-15% of used cars to appreciate in value. Virginia jurisdictions base their tax charges on the value of your car; so if the value goes up, so do your taxes.

WHAT WE FOUND

Pandemic shortages have caused economic domino collapses in a lot of industries, including cars—An enduring computer chip shortage has stalled production of new cars around the world.

"A modern car can have anywhere from 3,000 to 6,000 computer chips in it. These are chips that go into your cruise control, the power seat you have that adjusts," Jason Fichtner explained. "Everything requires computer chips and they're just in short supply. So car manufacturers have had to shut down production of new cars."

In comes the golden rule of American economics: supply and demand. There is such a small supply of new cars on the market that it has driven up prices drastically. Because of this, buyers are turning their attention to more affordable used cars. Here, we have the opposite effect: stagnant supply, but increased demand.

"Now the demand for used cars is higher, and so people are paying a higher price for those these cars," Fichtner said. "Over the last year, the average price of a used car has increased about 12 and a half percent."

In a typical non-pandemic-raddled year, most people would expect their car to depreciate in value, or be worth less money. However, this car supply domino effect means that some cars have appreciated in value, meaning they are valued at a much higher price. 

Most Virginia jurisdictions base their personal property tax charges on vehicle valuations calculated by groups like Kelley Blue Book or J.D. Power. When those values go up or down every year, your tax burden will follow. 

On the City of Alexandria's website, they say approximately 15% of registered vehicles will see appreciation instead of depreciation. Fairfax County said about 12% of the vehicles they track have appreciated this year. 

"This is where it's trickling down, that the chip shortage for new cars is affecting the demand for used cars, which increases the value of those cars, which now also goes into the resale value and the appraisal value, for which people have to pay the personal property tax in the Commonwealth of Virginia," Fichtner said. 

So we can verify that yes, the used car shortage is impacting the value of all cars, and in turn, Virginians who pay taxes based on the value of their vehicles could see a tax increase this year.