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(The Center Square) – The microchip shortage responsible for bottlenecking the production of new cars has been a boon for the used car market.

However, the lack of available new vehicles also has created a greater demand and thus a scarcity of quality used vehicles.

This has driven up the cost of used cars and trucks, which has also increased the sales tax collected on used vehicle transactions. The national average increase in used car sales prices is 16.8% or $3,926 per vehicle sold.

According to an iSeeCars.com analysis of 1.2 million used car sales nationwide, the price of used cars in Michigan has increased 17.7% year over year, ranking the state as the 29th-lowest price increase for used vehicles in the nation.

That translates to an average additional $4,051 per used vehicle sold in the state.

It also translates into a significant revenue boost to the Michigan Treasury. The state currently charges a 6% sales tax on the sale of used cars. This translates to an average $243.06 in additional tax collected per used vehicle sold in the state.

But those figures don’t tell the complete story.

Ron Leix, deputy public information officer for the Michigan Department of Treasury, emailed The Center Square with further details.

“We don’t have the complete picture,” Leix wrote. “A large share of used cars are sold by dealerships that also sell new cars. Those dealerships report total tax collected, and not tax by whether the vehicle is new or used. New vehicle sales have remained generally strong despite the production limitations and that is also contributing to strong sales tax collections from dealerships. Since we don’t get the split between new and used vehicles, we can’t provide information on the growth due to used vehicles,’ he said.

“It is important to note that we don’t have a measure of the number of vehicles sold so we don’t know for sure whether the strength is due to higher prices, more vehicles being sold, or, perhaps most likely, a combination of more vehicles being sold and higher prices,” he continued.

“We do receive data on the sales of used vehicles that are sold privately and not by a dealership,” Leix said. “Use tax is due when the buyer transfers the title and registration for the vehicle at the Secretary of State’s office.”

Leix explained any comparison of this year’s numbers with 2020 sales isn’t meaningful because of lockdowns during the pandemic, so he prefers to use prior year numbers from 2018/2019 instead.

Collections for use tax on private sales has been strong, Leix said, noting the state has collected $162.2 million from used car sales between Oct. 2020 and May 2021, compared to $105.8 million between Oct. 2018 and May 2019.

According to iSeeCars:

  • Consumers may be able to get a better used car deal by crossing state lines.
  • Rhode Island is the state with the greatest used car price increase in 2021 compared to 2020 at 25.55, which amounts to $5,559.
  • Another New England state, Vermont, has the smallest used car price increase at 10.7%, which amounts to $2,717.
  • Of the top 10 states with the lowest price increases, five are Eastern states and four are in the Midwest.
  • Of the 10 states with the highest price increases, six are Western states, and four are Eastern.

According to data provided by the National Automotive Dealers Association, average year-to-date used-car sales per new- and used-car dealership in the United States was $5,884,668 in March, the last month for which data is available. In March 2020, the year-to-date used car sales per new- and used-car dealership was $4,461,184.

Used Car Price Increases by State
Rank State Year-Over-Year % Price Change Year-Over-Year $ Price Change
1 Vermont 10.7% $2,717
2 New Jersey 11.1% $2,580
3 West Virginia 11.8% $2,910
4 Nebraska 12.1% $2,968
5 Wisconsin 12.3% $3,026
6 Minnesota 12.4% $2,945
7 Iowa 12.7% $3,135
8 Hawaii 13.3% $3,391
9 New York 13.7% $3,126
10 New Hampshire 13.8% $3,106
11 Massachusetts 14.1% $3,188
12 Indiana 14.1% $3,247
13 Connecticut 14.2% $3,000
14 Pennsylvania 14.3% $3,214
15 New Mexico 14.4% $3,444
16 Colorado 14.6% $3,554
17 North Dakota 14.9% $4,062
18 Illinois 14.9% $3,575
19 Idaho 15.0% $4,067
20 Oklahoma 15.9% $3,895
21 Texas 16.0% $3,890
22 Mississippi 16.1% $3,892
23 Louisiana 16.6% $3,883
24 North Carolina 16.7% $3,882
25 Kansas 16.8% $3,950
26 Maine 16.8% $3,977
National Average 16.8% $3,926
27 Delaware 17.3% $3,652
28 Virginia 17.3% $3,883
29 Michigan 17.7% $4,051
30 South Dakota 18.1% $4,998
31 Kentucky 18.3% $4,196
32 Missouri 18.4% $4,338
33 South Carolina 18.5% $4,283
34 Alabama 18.5% $4,304
35 California 18.7% $4,296
36 Maryland 19.1% $4,142
37 Florida 19.2% $4,224
38 Ohio 19.2% $4,102
39 Alaska 19.3% $5,907
40 Washington 19.4% $4,664
41 Tennessee 19.4% $4,539
42 Wyoming 19.6% $6,173
43 Oregon 20.2% $4,738
44 Arkansas 20.4% $4,994
45 Arizona 20.5% $4,600
46 Utah 21.0% $4,729
47 Montana 21.8% $5,926
48 Georgia 22.2% $5,100
49 Nevada 22.3% $4,852
50 Rhode Island 25.5% $5,559

Price jump for used cars results in boost in Minnesota sales tax collected