Even we have trouble keeping up with all the different taxes and fees and today we learned that a 2001 law passed by the Legislature allows Texas cities to impose property taxes on leased cars. The Galveston Daily News reports that League City collects $243 per year on a car appraised at $40,000, but that they may repeal the tax at tomorrow’s Council meeting.

The rationale given for allowing cities to impose this tax is that when people buy a car they pay sales tax at that time, but they do not do so when they lease. However, since the leased car tax is based on the appraised value of the entire car, it would seem unfair because the owner is accumulating no equity in the car and only using up a certain amount of that car’s lifespan every year – let’s say 10 percent if the car lasts 10 years.

The other concern is that most of the auto sales tax collected goes to the state, while cities that choose to impose a leased car tax apparently get to keep all of the revenue, making it a windfall for them without evening out the disparity in state revenue from leased versus purchased cars. At the end of the day, while fairness in taxation is important, the best thing for the economy is to have less taxation, leaving more money in the private sector to be invested.

So the leased car tax should be driven out of existence. Here’s the article from the Galveston Daily News: