New car tag law goes into effect Friday

Georgia’s new taxing scheme for motor vehicles goes into effect on Friday.
Coweta’s automobile dealers are getting ready for the change — and closely watching the Georgia General Assembly to see what happens to a bill that includes small changes to the program.
But first things first: the basics.
The new taxing program applies to all vehicles purchased in Georgia by Georgia residents after Feb. 28. It applies to new or used vehicles, whether they are purchased from a dealer or from an individual. There are some exceptions for transfers between immediate family members.
Georgians who bought a vehicle after Jan. 1, 2012, but before March 1, 2013, can choose to “opt in” to the new system, or they can stick with the old system and continue to pay ad valorem tax on the vehicles every year when they renew their tags.
If the car (or truck, or motorcycle) you are driving now was purchased before Jan. 1, 2012, the new system doesn’t affect you. You’ll continue paying a tax based on the value of your vehicle every year when you renew your tag.
The new program replaces the annual ad valorem tax (tag tax) and the sales tax on vehicles with a one-time title tax based on the “fair market value” of the vehicle — the “title ad valorem tax” or TAVT. The TAVT applies whether you purchased a vehicle from a dealer or from an individual.

Currently, the TAVT is 6.5 percent. Next year, it will be 6.75 percent. It will go to 7 percent in 2015. Under the law, it can go as high as 9 percent.

For those who bought a vehicle in the past 14 months, whether it’s in your best interest to opt in or not depends on a few factors.

If you bought your vehicle from a dealer — and therefore paid the 7 percent sales tax, you’ll probably want to opt in. That’s because vehicle owners get credit for any sales tax paid and the ad valorem tax paid when you got your tag. If the sales tax and ad valorem tax is more than the 6.5 percent of the fair market value you’d pay for the TAVT, your title tax is, basically, already paid. If it’s a bit less, you’ll just have to make up the difference. If you’ve already paid more than the total of the TAVT there are, of course, no refunds.

Vehicle owners will have to submit documentation proving they have already paid the sales tax and ad valorem tax.

If you’re going to opt in, there’s no need to do it now. Unless, that is, your birthday is in March. Instead, vehicle owners are urged to wait until they renew their tags to opt in. Long lines at tag offices are expected in March, and maybe a little beyond.

However, residents with January or February birthdays may have to come in earlier. Under the current law, the opt-in window closes on Dec. 31, 2013. Extending it through Feb. 28, 2014, is one of the changes currently being contemplated.

For those who typically purchase vehicles from dealers, the change will be an economic plus, with the TAVT basically replacing the sales tax, both of which are typically financed, and doing away with the yearly ad valorem tax.

Those who buy vehicles from individuals, however, will trade the annual tag tax for the up-front TAVT.

As the law is currently, the changes may also increase costs for people who lease vehicles. The TAVT will have to be paid on the leased vehicle by the vehicle owner, but the lessee will still have to pay a 7 percent “user tax” — every month — on the lease payment.

Doing away with that double taxation is one of the changes in House Bill 80, which will be back before the state Senate Finance Committee today. The bill was to have been heard last week, but was pulled. The committee meets at 8 a.m. today. If the bill passes the committee, it could be voted on by the full Senate as early as Thursday.

The bill makes a few major changes. One is to change the way the “fair market value” is calculated for the purposes of the TAVT. Another is to extend from 10 days to 30 days the time a dealer has to transfer the title. The bill does away with the sales and use tax on lease payments and extends the opt-in period.

Changes to the calculation of the value are definitely supported by local dealers.

Under the current law, the fair market value is determined by what is listed in the manual used by the Georgia Department of Revenue, minus the value of any trade-in. For new vehicles not in the manual, the value is the sales price minus rebates and the trade-in.

HB 80 would set the value as the sales prices minus rebates and the trade-in.

“I would think that the fair market value versus purchase price really needs to be addressed,” said Walt Gutierrez, owner of Toyota of Newnan. “Being a buyer’s market, the customer is usually paying less than fair market value,” he said. If the fair market value is based on the manual, “chances are they are probably going to get overcharged for the tax.”

The state Department of Revenue’s manual is only updated once a year, said Steve Mader, dealer/operator at SouthTowne Motors of Newnan. Additionally, the manual doesn’t consider the condition of the vehicle, the mileage, or any accessories such as upgraded wheels or sound systems.

“I don’t find it very accurate or fair,” said Gutierrez of the valuation system currently in the law. “Usually, you pay taxes based on what you spend, not based on what somebody says you should spend.”

Another concern with the current version of the law, said Mader, is that a dealer would have to pay the TAVT for a vehicle bought at an auction, and the tax would then be paid again by the final buyer. The same thing would happen for transfers between dealers. HB 80 does away with the dealer-to-dealer taxation, he said.

To get ready for the changes, both Toyota of Newnan and SouthTowne have started using an online title vendor to do the titling of vehicles.

Mike Fitzpatrick, owner of Mike Fitzpatrick Ford Lincoln Mercury in Newnan, said they are going to stick with the way they have always done titles — at least for now.

“We’ve been doing it with the county for so long,” said Fitzpatrick. “I don’t know that it is going to be more difficult. We are just going to do it the way we have been and do it as long as we can.”

Because dealership sales and “casual” sales will now be taxed the same, the new law is expected to benefit Georgia’s dealers.

“We never really know how much we have lost from people going to Walmart and seeing 10 of them parked on the parking lot, or going down the road” and buying a vehicle from an individual, said Fitzpatrick.

Gutierrez said he sells a lot of used vehicles.

“We just think: we pay for these huge facilities, we pay for licenses, we pay for employees. We pay for all of this and for somebody else to have an advantage over us — I’ve never found that to be fair,” he said.

Mader thinks the change will provide an economic boost, in the beginning, for dealers when it comes to people who have fairly new vehicles.

“If you have a one- or two-year old car that you are paying ad valorem tax on every year, you can come in in March and April and trade cars and get rid of that ad valorem tax,” Mader said. “I think it is going to increase business for a while. There are some people out there that pay anywhere from $400 to $800 a year” in vehicle ad valorem taxes, he said. For those people, it might be worth it to trade in and buy a new vehicle — and no longer have to pay that yearly tax, he said.

It’s a big change, and it’s certainly confusing for most folks, but the dealers think that it’s a good change.

“Like everything else, once we get our arms around it and get it fool-proof, I think it will be better for everybody,” Mader said. “There’s less paperwork on our end,” he said. And buyers will get their tag mailed to them — they won’t have to go get it for the first time.

“Nobody likes change ... and everybody is a little nervous,” said Gutierrez.

But, “in the long run, if this thing gets all put together correctly and goes down smoothly — I think people are going to benefit,” he said. Until he moved to Georgia, Gutierrez had never heard of people having to pay ad valorem tax on their vehicles every year — especially on their birthday.

“I always thought it was kind of funny you get a birthday card sent from the state in the form of a bill,” Gutierrez said.

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