Annual car tax nears an end

“It’s kind of insulting when you pay sales tax when you buy the car,” she said in a telephone interview Friday. “It’s like, ‘Happy birthday, pay tax on something you’ve already paid for.’”

That the state’s car tax is unpopular — even as taxes go — is not lost on state lawmakers. After years of trying, the Legislature finally killed it, in stages, as part of a widely supported tax bill that now awaits Gov. Nathan Deal’s signature.

Pending Deal’s approval, people buying cars after March 1, 2013, will no longer face paying an annual tax. Instead, vehicle buyers will pay a one-time fee up front, beginning at 6.5 percent in 2013 and topping out at 7 percent in 2015. The fee takes the place of both the sales tax, which is paid at the time of purchase, and the annual ad valorem tax.

The new program will phase in over about 10 years as residents holding on to their cars will continue to pay the old ad valorem tax as long as they keep their current vehicle.

Republicans have been on the trail of the so-called “birthday tax” for years.

In 2007, legislators wore “Axe the Birthday Tax” stickers to local GOP conventions to show their sentiments to local voters, but then-Gov. Sonny Perdue said the cutting the tax was irresponsible.

In 2009, lawmakers began pushing to dump the ad valorem tax on newly bought vehicles, replacing it with a one-time fee of 7 percent, but they capped the fee at $1,500. The cap earned criticism as a giveaway to luxury car buyers and died on the final day of that legislative session.

But this time the car tax could hide no longer when GOP framers included it as part of House Bill 386, a much broader piece of legislation that zipped through both chambers in just three days, passing the Senate on March 22 by unanimous vote.

The new tax structure applies to cars bought new or used, from dealers or individuals.

News of the birthday tax’s death comes just in time for members of the General Assembly to return to their districts and run for re-election. But legislative leaders cast the tax bill as a jobs generator, rather than a sop to voters.

While one tax is going away, legislators tacked on a new tax on private sales of vehicles, which had been a tax-free exchange. Like the removal of the ad valorem tax, auto dealers had a standing request at the General Assembly to tax person-to-person sales.

House Majority Leader Larry O’Neal, R-Bonaire, said putting so-called “casual” sales and cars sold by dealers on an even playing field is fair.

“There are only two other states besides us that have casual sales exemptions,” he said.

While auto dealers had long sought the end of the birthday tax (and the imposition of a tax on private sales), local governments had watched warily.

Where property and sales taxes can fall sharply in economic downturns, counties and cities could depend on the ad valorem tax to produce roughly the same amount of money month after month, year after year.

The motor vehicle tax is not a huge part of local budgets, compared to property and sales taxes. But it is a consistent part.

For instance, the car tax makes up less than 5 percent of DeKalb County’s $559 million budget, but that county has seen wild dips in property taxes as a result of the recession, while money from car tags keeps coming.

The General Assembly appears to have protected those local budgets.

Clint Mueller, lobbyist for the Association of County Commissioners of Georgia, said the deal struck in the tax bill will deliver “roughly the same amount of revenue” to local governments.

Even so, the change is difficult for local officials conditioned by years of difficult budgets, he said.

“They are extremely risk-averse, and there is some risk in this, so that’s what I’m hearing from our members,” he said.

“Some [counties] could come out better and some could come out worse.”

Counties with higher sales taxes, like Fulton and DeKalb, may lose some money in the new tax bill, since they no longer will get a share of sales tax generated by car sales. Instead, they’ll receive a share of the new title fee.

Since counties will continue to collect ad valorem taxes on currently registered vehicles, the state will phase in how much money gets sent to the local governments over 10 years.

But what about people who need a car now? Do they have to hold out until next March or pay the birthday tax?

For those folks, lawmakers included an opt-in method to the new system for people who bought a car at any point in 2012. Residents who bought and registered their cars in 2012 join the new tax system by paying the difference between the new tax and their old county ad valorem tax, if any.

That’s good news for Neslund, who got her Mercury this year. A college student who makes money as a part-time actress and burlesque dancer, she doesn’t have extra cash for an annual car tax.

“I don’t have the money lying around to buy a new car,” she said.

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TAX OVERHAUL AT A GLANCE

A unanimous state Senate passed House Bill 386 and just nine of 180 House members voted against it. The tax bill now awaits the signature of Gov. Nathan Deal, who supported it. Key elements of HB 386:

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