Georgia law on March 1 does away with ad valorem tax on vehicles

If you own a car, everything about your taxes changes Friday – or not.

Most people will see no immediate effect from changes that will overhaul the way Georgia taxes motor vehicles, said Richmond County Tax Commissioner Steve Kendrick.

“For the majority of folks, nothing will be different,” he said.

That majority is defined as people who haven’t purchased a car recently and those who don’t intend to buy one, he said. Those who bought a vehicle in the past 14 months or intend to make such a purchase, however, will see big changes.

For those residents, a new state law takes effect that does away with the ad val­orem tax, or “birthday tax,” and replaces it with a one-time “title tax,” which is due when someone buys a new or used vehicle.

Anyone who buys a car after Friday – from a dealer or from an individual – will be subject to a 6.5 percent title tax, based on the vehicle’s fair market value, said Takiyah Douse, the director of the tax commissioner’s Motor Vehicle Division.

Douse said the department expects a lot of people to line up at county tag offices Friday, but unless someone has a bill due March 1, there’s no reason to rush to do anything.

“March 1 is just the beginning,” she said. “It is not the end all, be all day for car taxes.”

Option for some

Douse said most car owners will fall into three categories when it comes to the new tax.

First, there are those who bought a car before Jan. 1, 2012. Those residents will continue to see yearly ad valorem tax bills due on their birthdays, just as they have been, she said.

“The birthday tax is not going away,” Douse said. “Those people will carry on as usual.”

Second are those who buy cars starting Friday. Their vehicles will be exempt from sales tax, and they will not pay the birthday tax. They will only pay the one-time title tax, she said.

“You pay that and you are done,” she said, explaining that those car owners will have to pay only the annual $20 tag fee when they renew their registration each year.

The third category is where people have options, Douse said. Residents who purchased a car between Jan. 1, 2012, and the end of February 2013 may “opt in” to the new title tax, or they may continue to pay the birthday tax each year.

Whether that’s the cheaper option depends on a few factors, such as the value of the vehicle, the amount of tax you have already paid – sales and ad valorem – and how long you intend to keep the car, she said.

The Georgia Department of Revenue has an online calculator at www.dor.ga.gov that can help residents decide what option is best for them.

In general, people who bought a new car they intend to keep for several years would be better off opting for the new title tax. Someone who bought a used car from another individual in a private transaction might not, Douse said.

People in the third category have until Dec. 31 to decide, although if their taxes are due earlier because of their birthday, it would be best to decide by that deadline, she said.

Private sales

Douse said the law will have the largest impact on private sales between individuals. Currently, someone who buys a car from another person does not pay sales tax and has to pay only an annual ad valorem tax. After March 1, they will be subject to the 6.5 percent title tax like everyone else.

Douse said people need to remember the tax is based on fair market value, not the purchase price, so even if you get a great deal from a friend, the taxes will reflect the value of the car.

Those who trade in a car at a dealer can also deduct the trade-in amount from the fair market value, which will reduce the amount of taxes paid, she said.

Douse said those who are exempt from ad valorem taxes, such as disabled veterans, will continue to be exempt from the title tax under the new law.

Also, the law does not affect out-of-state purchases. If someone buys a car in South Carolina and registers it in Georgia, they will be subject to the annual ad valorem tax, she said.

Family loophole

There is one loophole in the law that Douse expects many people will take advantage of in the next year. The law allows people to buy cars from an immediate family member and pay only a one-time title tax of 0.5 percent of the fair market value. Those who take advantage of that option won’t have to pay annual taxes on the vehicle.

“I think everybody in Richmond County is going to be related to each other,” she joked.

David and Elizabeth Rollins were at Bobby Jones Ford on Tuesday trying to decide when to buy a 2013 Ford Edge. They said the changes to the tax law were a puzzle they didn’t understand.

“There hasn’t been much information about it that I have seen,” Elizabeth Rollins said.

Salesman John Bowers explained that if they waited until after March 1, they would pay only the 6.5 percent title tax. They learned they wouldn’t have to pay sales tax, either.

“We will definitely be coming back,” Rollins said.

Bowers said he has been answering a lot of questions about the new law. Many people are waiting to buy a car until after it takes effect.

“It looks like March is going to be a busy month,” he said.

Tax officials expect confusion with tag changes
TAX CHANGES

The new law affects taxpayers in three ways. These changes also apply to private sales between individuals.

IF YOU BUY A VEHICLE AFTER MARCH 1:

• You will pay a one-time “title tax” of 6.5 percent, based on the fair market value of the vehicle.

• You will not pay sales tax on the purchase of the vehicle.

• You will not pay yearly ad valorem tax when renewing the vehicle registration.

IF YOU BOUGHT A VEHICLE BETWEEN JAN. 1, 2012, AND FEB. 28, 2013:

• You will have the option to pay the one-time title tax or continue paying yearly ad valorem.

IF YOU BOUGHT A VEHICLE BEFORE JAN. 1, 2012:

• You will continue paying ad valorem each year until the vehicle is sold or disposed of.

Use the Department of Revenue's Title vs. Ad Valorem Tax Calculator

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