Anyone who has recently purchased a new or used vehicle within the last year or is looking to do so should be aware of a new state law that will change how consumers pay taxes on their cars.
H.B. 386, tax reform legislation enacted by the Georgia General Assembly in 2012, has created a new system for taxing motor vehicles registered in Georgia. As a result, the annual vehicle title ad valorem tax — widely known as the “birthday tax,”— will change.

According to a news release from the Association County Commissioners of Georgia, beginning March 1, state and local sales tax will no longer apply to the purchase of a motor vehicle — except for the 1 percent transportation tax on the first $5,000 of any vehicle sale in regions that have this tax.

All vehicles purchased or transferred into ownership on and after March 1 will no longer be subject to the annual ad valorem tax. Instead, those vehicles will be subject to a new, one-time state and local title ad valorem tax (TAVT) that is paid at the time the owner registers the vehicle and applies for the title with the county.

The new system for taxing vehicles only applies when the ownership of the vehicle is transferred through a title exchange. All other vehicle owners will continue to operate under the current system and pay the annual ad valorem taxes until they no longer hold the title to their vehicle.

Currently, Georgians pay two taxes on their car, a sales tax when they purchase the car and an annual title ad valorem tax that is due on the owner’s birthday.

H.B. 386 does away with both of those taxes and replaces them with a single 6.5 percent title fee — based on the Georgia fair market value — that is charged whenever a car is registered in the state. The fee will eventually increase.

Beginning Jan. 1, 2014, the tax rate will increase to 6.75 percent; and then it will increase to 7 percent on Jan. 1, 2015. It will remain at that rate unless defined revenue targets in the law are not met, at which time the rate could adjust up to a maximum of 9 percent.

Barbara Dingler, Newton County Tax Commissioner, said all vehicles that are purchased on or after March 1 are subject to the TAVT, regardless of where the vehicle is purchased. 

Vehicles purchased through a casual sale — non-dealer sale — that were previously exempt from sales tax, will now be subject to the TAVT. She gave the example of a casual sale and what fees would now be required when an individual came in to the tax commissioners’ office to register their newly purchased vehicle in Newton County.

“Say you bought a vehicle at its fair market value for $15,000, someone sold you a vehicle. When you come and say you want to transfer this title and register the vehicle that you bought in your name, it’s going to be $1,013 to register it,” Dingler said.

“So on that $15,000 casual sale — $975 on the title ad valorem tax, $18 title fee and $20 tag fee — that would be a total of $1,013 you would have to pay to register that vehicle.”

“It’s going to hurt a lot of the casual sales because [they are] expecting to pay the $38, but we can’t do anything without them paying the full amount,” Dingler said. “Right now there is no sales tax or anything, so this catches the casual sales of individual to individual.”

She added that the payoff is that once those fees are paid, the individual would now have to just pay a flat $20 fee to renew their tag registration on their birthday and receive their decal.

Dingler said there is one exception to the new law. Owners who purchased any new or used vehicle between Jan. 1, 2012, and March 1, 2013, when the program begins, are eligible to opt-in to the new system.

To convert to the new system for free, the owner must prove that the taxes — sales and property — already paid, exceed what the owner would have paid through the TAVT. If the amount of taxes paid is less than the TAVT owed, the owner can pay the remaining difference and convert to the new system.

The one-time option to convert must be exercised by the vehicle owner before Dec. 31, at the county tax commissioner’s office. Vehicles purchased out of state are not eligible to opt-in.

Dingler said anyone who purchased a vehicle on Dec. 31, 2011, and prior will not have the option to opt in on the new tag ad valorem tax and they will continue to pay their annual tag ad valorem tax as normal.

There are several other important changes that will go into effect with the new March 1 change in the TAVT. They are as follows:

• Vehicles transferred from another state to Georgia will be subject to the title ad valorem tax in two installment payments, in addition to the title and registration fees that they 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 percent 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 title ad valorem tax at a rate of 1 percent.

• Certain veterans who were exempt from annual motor vehicle ad valorem tax will also be exempt from the title ad valorem tax.