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Divided they stand.

Divided They Stand

Jury Still Out A Month After Imposition Of Sales Tax On Used Cars

A tax on used cars? That's unconscionable. It's un-American," says the Big Man, his face tightly pressed against the camera lens and beaming into thousands of Arkansas homes.

His mouth seems big enough to hold two sets of teeth.

The Big Man is actually Little Rock advertising man John Hudgens, who does work for Twin City Motors.

The ads ran before the May 1 used car sales tax kicked in.

"You can protest if you buy now before the tax goes into effect," Hudgens says.

And that's what many people did.

"We had the second best month in 19 years," says Ken Sluyter, used car sales manager at Jim Ray's Pontiac-Cadillac-Isuzu in Fayetteville.

Sluyter sold 82 cars in April, compared with 50 in May.

During this year's session, the Arkansas Legislature increased the state sales tax by half a cent and for the first time applied the sales tax to used vehicles costing more than $2,000.

The tax increases are being used to establish an education trust fund, which is expected to provide an average salary increase of 10 percent per year in each of the next two years for the state's teachers.

Teacher salary increases will average $4,900 and could raise Arkansas from 50th to 44th in national rankings, according to the Arkansas Education Association.

Used car dealers weren't thinking about the teachers this spring, however. They were using the period before May 1 as an opportunity to boost sales, which many predicted would fall precipitously after the tax went into effect.

Only one major trade association, the Arkansas Independent Automobile Dealers Association, lobbied against the tax on used cars.

"It places the tax on the people least able to afford it -- everybody who can't afford a new car," says Bob Wimberley, the association's executive vice president.

"We don't think it's going to work," Wimberley adds. "It's going to cause an administrative nightmare."

The Department of Finance and Administration says it hasn't experienced a nightmare yet. And some dealers who sell both new and used cars are not complaining.

But there are numerous used car dealers across the state who remain opposed to the tax and say it is hurting the state more than helping.

Problems In Searcy

Jimmie England and her husband, William, have owned England Auto Sales in Searcy for 12 years. The Englands operate a used car lot that usually holds 25 to 30 cars, less on a good day.

Most of Jimmie England's customers can't afford a car costing more than $5,000, but she says she wants to help "fix them up with one" even if Gov. Bill Clinton and members of the Legislature don't.

"It's going to hurt my business, and it's going to hurt my customers," England says of a tax she's "violently opposed to."

"It's a ridiculous, stupid law," England says. "Some guy can go out and trade in his Cadillac every two years, and he's helped. But my little guy here who buys a car [is hurt]. It's not right."

The law allows new car buyers to trade in their old vehicles and pay only the sales tax on the difference between the price of the two cars.

Jimmie England lists the reasons why she thinks used car buyers are not getting a fair shake.

"By the time they get through paying a down payment, a county tax and a city tax, with six months of insurance, they pay $500 on a $5,000 car," she says.

England has slashed her down payment amounts by as much as half to make sure she's able to sell the cars sitting on her lot.

She understands the importance of the tax and claims she would have supported a smaller tax bite.

"We did not oppose a tax on used car sales," Wimberley says.

The association suggested a 2 percent across-the-board tax.

"A used car is sold several times, and we thought it would be a lot fairer tax," says Steve Jones of Steve Jones Motor Co. at West Memphis. "It would have been more affordable and would have generated more money for the state because we wouldn't have exempted cars under $2,000."

Jones says his company was having "one of the biggest years we ever had" until May.

Although February is the shortest month, it was Jones' biggest month in 20 years. He sold 60 cars. March saw the sale of 45 cars. Sales kept booming, in fact, until almost May.

Jones has only sold five or six cars since May 1.

"We had some slowdown in May," says D.J. Jones, president of Twin City Motors and chairman of AIADA. "But I don't know if we can attribute it to the tax. The jury is still out."

Hung Jury

If that jury consisted of the dealers themselves, it would be hung.

The tax has been in existence for a month. Opponents are still condemning it. Supporters are still praising it.

"We need to align ourselves with the rest of the country," says Don Warden of Little Rock's Warden Motors.

Warden doesn't believe the tax will cause an administrative nightmare.

"I've been through tax increases and rulings before," Warden says. "After a certain amount of time, it's business as usual."

Tim Leathers, the state revenue commissioner, agrees.

Leathers points to the 34 states that have similar laws.

"If they could do it, we could do it," Leathers says. "We've had some questions come up, and we've had to adjust some things, but there haven't been any big problems."

Individual car sales, known as casual car sales, account for 60 percent of all used car sales in Arkansas. Critics of the tax say it will be simple for individual sellers to strike deals with their buyers and avoid the sales tax.

"It lends itself to -- I don't want to call it cheating -- but all types of problems," Wimberley says.

He asks how many used cars suddenly are going to be sold for less than $2,000, according to the buyers and sellers.

Leathers answers, "Most taxpayers do what they're obligated to do."

"Arkansans are very supportive and committed to the education the money is earmarked for," says Dennis Jungmeyer, executive vice president of the Arkansas Automobile Dealers Association. "That's had an impact."

John Robben, the used car manager at Jones Toyota-Volvo in Little Rock, says that while the tax "certainly hasn't helped sales any," it is "something that like anything else people will get used to."

But not everyone is willing to get used to it.

"I would hope the Legislature will reconsider and do something to soften the blow to these people," Jimmie England says. "It has really hurt."

PHOTO : USER FRIENDLY: John Robben, Jones Toyota-Volvo used car manager, rides the fence in the debate over the used car tax. Robben says the tax certainly hasn't helped sales -- used car sales are down 15 percent at Jones -- but that like everything else, people will become accustomed to it.
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Title Annotation:reaction to imposition of sales tax on used cars
Author:Rengers, Carrie
Publication:Arkansas Business
Date:Jun 3, 1991
Previous Article:Are raw materials getting a raw deal?
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