The responsiveness of heavy vehicle registrations to interstate tax differentials

Abstract

Although the literature is rich on the subject of tax competition between states and regions, little analysis has been published on the responsiveness of interstate highway users to variations in vehicle registration fees and other motor vehicle taxes. While intrastate motor vehicle owners can avoid road user taxes only through tax evasion, firms engaged in interstate commerce have wide discretion in determining where to register their vehicles. Vehicle mobility and high enforcement costs, combined with the institution of registration reciprocity, give interstate motor carriers this discretion. Under registration reciprocity, a vehicle properly registered in one state can legally travel in any other state without having to pay additional registration fees. For an 80,000 pound vehicle, these annual fees presently range f rom $35 to $2200. Thus, a priori, one might expect some responsiveness to these fee differentials. Heavy vehicle registrations in a given state are responsive to differences in registration fees, sales tax rates, property taxes, and membersh ip in p ropor t i ona l regis trat ion compacts. It is the purpose of this note to report how responsive are heavy vehicle registrations in a given state to differentials in the model the carrier selects from its states of operation that state for vehicle registration which would minimize the fixed-charge component of yearly operation. Although there are no variable charge components associated with this optimal choice, the cost differential realized from a judicious selection of vehicle domicile can be affected further by interstate differences in vehicle ad-valorem taxes (most notably the property tax) and differences in motor vehicle sales tax rates and bases. One can, therefore, determine that the annual number of heavy vehicle registrations in a state is a function of the derived demand for transport services in that state and the total registration cost differential (inclusive of registration fees, ad-valorem taxes, and sales taxes) between that state and any other contiguous states connected by a motor carrier route that is common to both states. To estimate this relation, the authors use the regression equation: