By Josh Akeman
The annual ad valorem, or "birthday tax," is on its way out as Georgia is switching to a one time title ad valorem tax (TAVT). While a new, one time 6.5% tax sounds like a a tax hike, it will actually save money for many car purchasers, as the new law also exempts vehicles from sales tax, which are 6% in Fayette County. So for that extra half a percent up front, the average buyer at a dealership will save hundreds of dollars down the road on annual ad valorem taxes.
The new system has drawn some confusion around the state as tax payers try to get a handle on what this will mean to their bottom line.
For anyone that owns a vehicle purchased prior to Jan. 1, 2012, the law will have no immediate effects. Those owners will continue to pay annual ad valorem taxes until the vehicle is sold or the title is transferred. That point of purchase, or title transfer, will trigger the TAVT.
Owners of vehicles purchased between Jan. 1, 2012 and March 1, 2013 are eligible to opt-in to the TAVT system. They only need to provide documentation showing that the taxes already paid on the vehicle exceed what the owner would have paid for the TAVT. If they are less, the owner can make up the difference.
The biggest concern from this law will be for private vehicle sales, which will now be subject to the TAVT. This is a much bigger issue for private purchases than for dealership purchases, which would have always charged sales tax, whereas private sellers aren't required to. That means private buyers will see an immediate 6.5% bump in up front costs, whereas someone buying through a dealership would only see a half a percentage bump, since the 6% sales tax has been removed.
The Atlanta Journal-Constitution quoted Georgia's tax commissioner Douglas MacGinnitie: “If you are someone who bought cars from a dealership and held them, you’re better off under the new system, almost from day one. If you’re someone who buys from a casual sale frequently, you’re worse off.”
While there still may be cost advantages to buying from a private seller versus a dealership, this tax change has eliminated the bonus of not having to pay sales tax.
The 6.5% TAVT rate will go up to 6.75% in January, 2014 and then again to 7% in January, 2015. It will remain at 7% unless defined revenue targets in the law are not met, at which time the rate could adjust up to a maximum of 9%. The tax is taken as a percentage of the value "as defined by the Department of Revenue's motor vehicle ad valorem assessment manual. When there is no value available in the assessment manual, the bill of sale or a reputable used car market guide determines the value," according to a press release from Fayette County Tax Commissioner George Wingo. A vehicle purchaser can deduct the value of a trade-in vehicle to reduce the taxable value. An owner may also appeal to the County Board of Tax Assessors if they believe the assessed value of their vehicle is too high.
As a handy cheat sheet, Wingo offered these bullet points about the new law:
- Vehicle owners will continue to pay annual ad valorem tax on the current vehicle until the vehicle is sold or the title is transferred.
-Vehicle purchases through a private sale (non-dealer sale) that were previously exempt from sales tax will now be subject to the TAVT.
-Vehicles transferred from another state to Georgia will be subject to the TAVT in two installment payments, in addition to the title and registration fees that you were responsible for in the past.
-Leased vehicles will still be subject to a use tax on the monthly lease payment. The dealership is responsible for paying the title ad valorem tax and may include this cost in the term of the lease.
-Vehicle titles transferred between family members, including spouses, parents, children, siblings, grandparents or grandchildren, will be handled as follows:
-Vehicles owned prior to March 1, 2013: The family member who is titling the vehicle has the option to pay the full title ad valorem tax or continue to pay the annual ad valorem tax under the old system.
-Vehicles purchased on or after March 1, 2013: The family member who is titling the vehicle is subject to a 0.5% title ad valorem tax.
-Title applications must be processed in the county where the vehicle is to be registered.
-Salvage vehicles and vehicles donated to charities will pay a reduced TAVT rate of 1%.
-Certain veterans who were exempt from annual motor vehicle ad valorem tax will also be exempt from the TAVT.