Tag tax on its way out; to be replaced with one-time fee
By SARAH FAY CAMPBELL
The annual “tag tax” on motor vehicles and the sales tax on vehicle sales are on the way out.
A phased-in repeal of the annual ad valorem tax on motor vehicles was part of the tax reform bill, House Bill 386, that sailed quickly through the Georgia House and Senate this week.
Under the plan, Georgians who buy a vehicle after March 1, 2013, will pay a one-time “title fee” on the vehicle. After that title fee is paid, there will be no ad valorem tax charged each year when the vehicle’s tag is renewed. However, there will likely still be the actual tag fee, which is currently $20.
The title fee will be 7 percent of the fair market value of the vehicle.
For residents of unincorporated Coweta County, the annual tax on motor vehicles is currently equal to 1.14 percent of the vehicle’s fair market value.
The tax on motor vehicles is based on a millage rate, just like the taxes on real property. And like real estate, the millage rate is charged on the “assessed value” of a vehicle, which is set at 40 percent of the fair market value.
The current millage rate for vehicles in unincorporated Coweta is 28.60, said Tommy Ferrell, Coweta tax commissioner.
The millage rate varies for residents of the various municipalities, the fire district, and the fire bond district.
The taxes collected on motor vehicles go to the county and the cities, with a small portion going to the state. Under HB 386, the proceeds from the title fee will be split between the state and the local governments. Early on, a larger percentage will go to the state; the local government percentage will increase each year until 2022, when local governments will get 72 percent of the fee.
“They are saying it is supposed to be revenue neutral,” Ferrell said. That is, counties that depend on the ad valorem taxes shouldn’t lose money as the transition is made.
The bill passed quickly â ” it wasn’t even made public until Monday. It passed the House of Representatives on Tuesday with just nine “no” votes, and passed the Senate unanimously on Thursday.
The tax package moved so quickly that it is still not known how the changes will affect individuals â ” or the counties that stand to lose revenue.
Ferrell expects to hear a lot more about the bill at various meetings and conferences between now and when the change goes into effect. The Georgia Department of Revenue will have to make some programming changes to the software system, as well.
It appears the change will be a substantial tax cut for those who buy new vehicles, or used vehicles from dealers â ” because they will not have to pay sales tax on the purchases.
But for those who buy used cars from individuals, the change could represent a substantial up-front cost.
As it stands now, “casual” car sales are not subject to sales tax. After the change goes into full effect, someone who purchases a car valued at $5,000 from an individual would have to pay a $350 one-time title fee instead of an ad valorem tax of $57 the first year. For a $10,000 vehicle, the title fee would be $700 instead of the first year ad valorem tax of $114. Under the current system, the ad valorem tax goes down each year, as the vehicle’s value decreases over time.
The title fee won’t be 7 percent until 2015. It will start at 6.5 percent in 2013, and will be 6.75 percent in 2014.
Georgians who purchased vehicles after Jan. 1, 2012, but before March 1 of 2013 have the option to opt in to the new system or stick with the old one.
The fair market value that the title fee is based on may roughly be equivalent to the sales price, but it doesn’t have to be.
The legislative language lays out three ways to determine fair market value.
For a vehicle that is listed in the “current motor vehicle ad valorem assessment manual utilized by the state revenue commissioner in determining the taxable value of a motor vehicle,” the fair market value is defined as the “average of the current fair market value and the current wholesale value.”
For a used vehicle that is not listed in the assessment manual, the fair market value is “the value from the bill of sale or the value from a reputable used car market guide designated by the commissioner, whichever is greater.”
If there is a new vehicle that is not listed in the assessment manual, the fair market value is determined by taking the price in the bill of sale “less any rebate and before any reduction for the trade-in value of another motor vehicle.”
The tag tax change is just one of the many changes in the tax reform bill.
Other changes include the elimination of the sales tax on energy used in manufacturing, a revision of the income tax credit for the donation of conservation property, the repeal of the sales tax exemption for film equipment and production (but not the income tax incentives for film projects), changes to other sales tax exemptions, new requirements for the collection of sales tax on purchases made over the Internet, the return of sales tax holidays for school supplies and energy or water efficient appliances and products, and an increase of $2,000 in the state income tax standard deduction for married couples.