Less Taxes, More Fees When Buying A Car

January 8, 2013 13:00 pm

by Charlie · 26 comments

Today’s Courier Herald Column:

Starting March 1st, Georgians will have some changes when they purchase or lease new and used cars.  Courtesy of the recent “tax reform”, the sales tax on automobiles and ad valorem taxes paid on the owners birthday will go away for those buying cars on or after that date.  But, this is Georgia, so the system isn’t exactly that simple.

The sales tax paid is now replaced with a title “fee”.  (I hope you’re used to referring to any device that raises revenue as a fee by now.  Legislators really don’t like it when these new ones are called “taxes”.)

The one-time fee will start at 6.5% for all new and used cars purchased on or after March 1st.  This includes all vehicles bought and sold between private individuals, which previously did not pay sales tax on these casual sale transactions.  Next year it will rise to 6.75% and in 2015 will be set at 7%.  The legislation allows for the fee to possibly increase as high as 9%.

Those who purchased a car after January 1st of 2012 can apply to transfer to the new system after March 1st to avoid paying future ad valorem taxes on their cars.  They will have to pay the difference between their sales tax paid and the title fee.  Those with cars purchased before 2012 or those that don’t wish to pay the title fee will continue to pay ad valorem taxes annually.

For the first three years, the fee will roughly replace sales tax for those in Georgia counties with a sales tax rate of 6 or 7%.  However, unlike sales taxes, all revenues will go to the state instead of being divided between state sales taxes and local option taxes.  The state promises that counties will not lose revenue under this system.  And yet, the state has millions that remain each year that get spent in its general fund that were earmarked for local governments through similar fees.  Time will tell if counties will be able to hold the state to its promise on this one.

The winners in this scenario are people who purchase cars at dealerships and hold them for a reasonable length of time.  They will pay little or more up front, but will only pay license plate tag renewal fees each year instead of the added hefty ad valorem tax on the cars.  When trading cars at a dealership, the state will allow a credit for the trade in value in calculating the new title fee, similar to how sales taxes are treated now.

Those who may pay more under this system are those who purchase used cars from individuals.  While these private transactions are currently not subject to sales taxes, they will be subject to the title fee when they register their automobiles.  They too, however, will not pay ad valorem taxes, so whether or not they pay more depends on how long they hold their automobile.

The definite losers under this program are those who lease cars.  Under the current system, those who lease pay a monthly “use tax” which is calculated like sales tax on top of their monthly lease payment.  This use tax is not going away, but the title fee will be a new tax added to the transaction, payable up front.

Because lease terms have a limited term of contract, the title fee must be amortized within the time the driver keeps the vehicle.  To demonstrate what kind of effect this will have, we’ll look at one of the lease specials that was heavily advertised in the Atlanta area during December.  A local Infiniti dealer advertised a G37 sedan for a “sign and drive” lease payment of only $288.  With 6% sales tax, the total payment would be about $306 per month.

Assuming this offer was still available in March, the purchaser would have to pay the title fee up front.  Given this car’s $40,000 MSRP, the fee would equate to an extra $2,600 out of pocket.  If rolled into the lease payment, it would raise the payment to about $415 per month, roughly increasing the cost of leasing this car by one third.

The interesting thing about this basket of tax packages is that they were specifically designed to promote businesses and competitiveness.  The big winner was large manufacturers who received a break from the sales tax they pay on energy.  But it is Georgia’s smallest businesses and the self-employed who tend to lease cars.  They are the ones who come out unambiguously worse under this proposal.  It’s another example of how the party of business is actually the party of big business.  Small businesses that don’t have lobbyists are often an afterthought.

New car dealers who pushed heavily for the law are likely to be back this session asking for a fix to the lease issue.  Unlike the small businesses and the self-employed, the Dealers’ Association is a powerful and effective lobby, and it’s members depend on sales by lease.  This unpleasantness will likely be addressed some time during this session.

IndyInjun January 8, 2013 at 1:45 pm

This is yet another in a long list of outrages of the Georgia Legislature against the middle class. GOPers rant and scream about Obama, but their very own have voted to increase costs for Georgians that are several multiples of the income increases needed to pay for them. The propaganda for TSPLOST was based upon personal income growth of 8.8% this year. Americans’ real incomes are at 1973 levels.

Put on your track shoes. Trying to outrun the predations of these jackals and their sponsors is a challenge.

Lawton Sack (GATA Eagles!) January 8, 2013 at 2:05 pm

This is a serious question:

Can I sell my vehicle, which is in my name, to my wife for a $1 on March 1 and quit paying ad valorem taxes on it by paying the 7 cent title fee?

Charlie January 8, 2013 at 2:12 pm

No. Good question, and all the issues with this new law couldn’t fit in a column which was already longer than my limit.

The fee will be assessed on what the state says the value of your car SHOULD be. Not on the value of the sale. After all, it’s a – say it with me – “title fee” and not a sales tax.

So if anyone is planning on moving titles of cars around within the family, there’s a strong incentive to do that prior to 1 March.

IndyInjun January 8, 2013 at 2:14 pm

I think that the legislation allowed for transfers between designated levels of “family.”

IndyInjun January 8, 2013 at 2:13 pm

Nope. The Fee is based upon whatever the Revenue Department SAYS it is worth, not what you paid for it. Frugal folks who manage to secure a bargain purchase will find that the fee tax won’t be a bargain.

There was a PP posting a couple of weeks ago where a Atlanta metro area county tax commissioner was explaining how this all works. That was what I took away from it.

Doug Mac January 8, 2013 at 2:48 pm

We will use a black book value – which is a blend of wholesale and retail pricing. It is the same value that is used to generate the ad valorem tax bill currently.

Lawton Sack (GATA Eagles!) January 8, 2013 at 2:52 pm

Where can we access these values online? Is condition factored in at all?

Doug Mac January 8, 2013 at 3:14 pm

Condition isn’t factored in blackbook, but a taxpayer has the right to appeal the valuation if he/she thinks it is not accurate.

On the values – we are currently working on a website where a taxpayer will be able to figure out the TAVT for the type of car they want to buy.

mpierce January 8, 2013 at 3:50 pm

Assessment manual has a list of assessed values.

or you can look them up online. Ad valorem tax / millage rate X 1000 = assessed taxable value

Assessed taxable value is also listed on your renewal notice.

Dividing assessed taxable value by 0.4 should give you actual value used.

Doug Mac January 8, 2013 at 4:00 pm

That is correct. But our working assumption is that for most people that is too many steps so we will try to make it easier by asking for make, model, year and series and the
tax will be generated.

Lawton Sack (GATA Eagles!) January 8, 2013 at 2:35 pm

Another question:

How does this impact the sticker on your tag? If you pay the new “title fee,” do they just send you a sticker each year or is there a special little sticker? I got pulled over in the big town of Register the other day because my 2013 sticker either fell off or was stolen. He told me that it was easy to spot me because my little sticker wasn’t red. I had to pay $8 to get a replacement.

Charlie January 8, 2013 at 2:39 pm

That one I haven’t asked. My understanding is you still will have the annual trip to the tag office to renew your tag. There of course will be the tag “fee” which I think I remember being $20. There just won’t be the ad valorem tax that varies based on the value of the car.

I know many tag offices do this by mail, but the whole tag won’t be free. It will just be dramatically lower if you’re driving a newer car.

Doug Mac January 8, 2013 at 2:51 pm

Charlie is correct. There is still a requirement to keep your annual registration up to date which requires payment of a fee (I think the $20 is right but I’d have to double check) and, in certain counties, the passing of an emissions test.

IndyInjun January 8, 2013 at 2:52 pm

Watch for them to raise the license plate tax/”fee.”

Lawton Sack (GATA Eagles!) January 8, 2013 at 3:31 pm

Doug,

Thank you for taking the time to answer these questions. It is certainly appreciated.

Doug Mac January 8, 2013 at 3:43 pm

No problem. Let me know your address and I’ll get my bill over to you.

Lawton Sack (GATA Eagles!) January 8, 2013 at 3:58 pm

I’ll just pay it on my birthday when I pay my ad valorem taxes and tag fees. :)

IndyInjun January 8, 2013 at 3:59 pm
mpierce January 8, 2013 at 4:34 pm

Those who purchased a car after January 1st of 2012 can apply to transfer to the new system after March 1st to avoid paying future ad valorem taxes on their cars. They will have to pay the difference between their sales tax paid and the title fee.

If the sales tax was higher than the title fee, do I get a refund of the difference?

Doug Mac January 8, 2013 at 4:49 pm

No.

januarybirthday January 9, 2013 at 10:10 am

If you bought a new car in 2012, paid the new car sales tax, and have birthday in Jan or Feb – it seems you have to pay an extra ad valorem tax on that early year birthday – since you cannot opt in until March 1st. I guess the lines at tax offices will be long the first week in March as folks try to renew registrations for cars bought in 2012 with early March birthdays but can’t opt in till March 1st. Why didn’t they just allow 2012 buyers to opt in during DEC 2012 so this could have been avoided or am I misunderstanding something. I wish someone had mentioned this when we bought the car, I would have put it in my spouses name since they have a May birthday. Or when you opt in – do you still have to pay ad valorem for 2013 and then none in 2014?

Dave Bearse January 9, 2013 at 10:17 am

Other big losers are people that itemize for income tax purposes and own good cars. The car sales tax is not deductible from income. (Calling this tax a fee is idiotic, and is evidence of increasing idiocy at the Gold Dome.) Georgians will now collectively pay tens of millions more annually in state and federal income taxes.

Back of the napkin calulation (admittedly on the high side in the interest of very round numbers):

Say an average $200 ad valorem tax on 1,000,000 Georgia registered vehicles is currently deductible from personal income for income tax purposes. Many Georgians pay a 21%-31% nominal income tax rate (6% state, plus 15% fed up to $35,350 / 25% fed between $35,350 and $85,650). The change eliminates the collective deductibility of $200,000,000 in income annually. The results, at say a 25% average nominal income tax rate, is Georgians will pay an additional $50,000,000 in income taxes annually.

Over three-quarters of that $50M goes to Washington. Gold Domers bloviating about Washington income taxes ought to be enacting state legislation that reduces, not increases, federal income taxes paid by Georgians.

That title fee idiots, for raising the income taxes at my two vehicle household $100 a year. Who’s on tap this year’s “tax reform”?

Dave Bearse January 9, 2013 at 10:58 am

Who’s on tap to purchase this year’s “tax reform”?

PS – The prior comment assumes the switch from ad valorum to sales tax is revenue neutral. I think that unlikely with the Dome’s recent history of screwing local government. If the new sales tax collects less revenue, the foregoing is mitigated.

When preparing to purchase a new vehicle in 2010, I visited CarMax and they made an offer of $6,500 on the car I was going to dispose of. I put that car on the market for $11,900 and sold it three days later for $11,500.

Will people that privately sell their cars because they’re going to purchase new cars get a tax credit similar to that the dealers will provide? Of course not, the dealers paid for legislation favoring dealers.

seekingtounderstand January 9, 2013 at 4:06 pm

Guess who lead the fight for this in the GA Senate and who owns a Honda dealership in GAinesville, GA? Who will be in a leadership position in the GA dome and will have no challengers to being re-elected by design?

DavidTC January 9, 2013 at 2:53 pm

Okay, the dumbness of this entire thing aside, I think I need mentioning: This is a TAX. Not a ‘fee’.
A fee is when the government charges a _flat amount_ for a service. If it is something that you just owe the government in general, and not something that the government did for you, it is not a fee. If it cannot be specified as a dollar amount in advance, it is not a fee. If it’s a percentage of an amount of something you own or were paid or paid someone else, it certainly not a ‘fee’, and is indeed a tax.
The anti-tax rhetoric of the right is now screwing up our damn language. Apparently, we can’t even admit we pay taxes on cars. Guys, we all _know_ we pay taxes on cars we own. This is not a secret.
What’s next, we all start paying ‘property fees’ each year instead of property tax?
I don’t actually understand what this is trying to do except make it harder for poor people to buy cars (Because they have to pay a large amount at once instead of small amounts every year, which is especially bad if some kind soul gave them a car for cheap.), but I’m not putting up with the stupidity of not calling this a tax.

seekingtounderstand January 9, 2013 at 4:08 pm

But folks who vote Republican will call it Agenda 21 while the vote for the same folks who gave them this new tax and many, many road tolls to come soon.

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