October 31, 2014

New Changes on the Horizon for Automobile Purchases:”The New Ad Valorem Tax”

Article Courtesy of Stephens and Stephens Accounting

During the 2012 legislative session, House Bill 386 passed the General Assembly by a vote of 155 to nine.

lt includes several tax reforms such as: eliminating the marriage penalty by expanding the personal exemption for married individuals; special exemptions for the manufacturing, agriculture, and airline industries; reinstating the sales tax holidays for two years; revisions to credits and exclusions for film productions, conservation, and retirement income; requiring sales tax on some online purchases and completely changing how taxes are collected on automobiles.

In the past, when you purchased an automobile you paid sales tax on the purchase price (if you bought from a dealer), paid a Title Transfer Fee of $18.00 and a tag fee of $20.00 and then every year after that on your birthday you paid Ad Valorem Tax based on the vehicles value and the $20.00 tag fee. Effective March 1, 2013 all of that changes.

House Bill 386 does away with the “birthday tax” and the sales tax and replaces it with a 6.5% Title Ad Valorem Tax for 2013, 6.75% in 2014, and 7.0% in 2015.

This Title Ad Valorem Tax is based on the fair market value of the automobile as determined by the Georgia Department of Revenue not the sales price. This tax also applies to sales between individuals. lt has no impact on automobiles that you currently own. You will still continue to buy your tag and pay your Ad Valorem Tax in the same manner as you always did.

Let me give you an example:

If you purchase a vehicle on or after March 1, 2013, you will pay the new Title Ad Valorem Tax of 6.5% instead of sales tax. lf you purchase from a dealer, the tax will be included in your purchase price, then each year when you renew your tag there will be no more Ad Valorem Tax just the tag fee.

lf you trade a vehicle in, the 6.5% will be calculated on the amount after the trade-in. If you purchase a vehicle from another individual when you apply for your tag you will be required to pay the 6.5% Title Ad Valorem Tax and the $20.00 tag fee.

Keep in mind, that the 6.5% Title Tax is not based on your purchase price but on the fair market value of the vehicle determined by the Georgia Department of Revenue.

When you move into Georgia from another state, you have 30 days to register your vehicle and apply for a Georgia tag. At that time you will also be required to pay the 6.5% Title Ad Valorem Tax along with the $18.00 title transfer fee and the $20.00 tag fee. Again, this fee will be based on the fair market value of the vehicle determined by the Georgia Department of Revenue. Vehicle owners transferring into Georgia will have the option of paying this tax in two installments.

 If you purchased a vehicle in Georgia between January 1, 2012 and February 28, 2013 you have the option of paying the new Title Ad Valorem Tax instead of the current annual ad valorem tax.

Stephens Article Pic2For example, if you purchased a vehicle from a dealer between January 1, 2012 and February 28, 2013 you would have paid 7% sales tax on that vehicle. When you applied for your tag, you had the choice of paying the 6.5% Title Tax or staying on the Annual Ad Valorem Tax program.

Since you have already paid the 7% sales tax, the state gives you a credit for the sales tax against the 6.5% Title Ad Valorem Tax and each year when you renew your tag you would only pay the tag fee of $20.00.

If you purchased a vehicle from an individual between January 1, 2012 and March 1, 2013 you have the option of paying the 6.5% Title Ad Valorem Tax on the fair market value of the vehicle determined by the Georgia Department of Revenue or you can opt to continue to pay the annual Ad Valorem Tax each year when you renew your tag.

This option might take a little more research to determine whether the 6.5% one- time Title Ad Valorem Tax would be more or less than the Annual Ad Valorem Tax. The cost of the vehicle and the length of time you intend to keep the vehicle would both be factors in making this decision.

Also, the tax commissioner’s office would be able to help you to determine the best route to take or you can go online to www.etax.dor.ga.gov to calculate either the estimate of the new Title Ad Valorem Tax or the comparison between the current ad valorem tax and the new one-time title ad valorem tax.

For those of us who always purchase a vehicle from a dealer this change will be hardly noticed. But if you are always looking for that great bargain when purchasing a vehicle and love buying from individuals to avoid that dreaded sales tax, those days are no more at least after February 28, 2013.

Just make sure when you purchase that good deal from an individual you are not taken by surprise when you head to the Tag Office to register your vehicle!

Colleen Stephens
Certified Public Accountant

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