Georgia lawmakers’ dilemma: $200 million tax hike or loophole closer?

Used-car buyers would see a tax increase under House Bill 340, but people who lease cars would see a tax cut. (Gary Friedman/Los Angeles Times/TNS)

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Used-car buyers would see a tax increase under House Bill 340, but people who lease cars would see a tax cut. (Gary Friedman/Los Angeles Times/TNS)

Used-car dealers see it as a $200 million tax hike for their customers, most of whom can’t afford to buy a new car. New-car dealers view it as fixing a loophole that currently allows used-car dealers to get an unfair competitive advantage on taxes and to sometimes scam the system.

Who wins one of the General Assembly's hottest business battles — over how cars are taxed — probably won't be decided until the final days of the General Assembly's session. But the outcome of House Bill 340 is a classic case of how changing tax laws can produce big-money winners and losers.

State estimates say that by fiscal 2019 — the first full year the law would be in effect — the proposed changes in how used cars are taxed could mean an extra $237 million in title fee payments. That could rise to $268 million by 2022.

Another part of the legislation would lower the bill on the same tax to those who lease cars, cutting their tab by up to $74 million in 2019, a number that could grow up to $106 million by 2022.

Both sides of the debate are familiar to leaders in the General Assembly. How to tax the sale/purchase of cars has been debated for decades.

Auto dealers lobbied for more than 20 years before succeeding in persuading lawmakers in 2012 to phase out sales and property taxes on cars and replace them with a title fee. People who haven’t bought a car in recent years still pay property taxes on their vehicles.

Combined, the Georgia Automobile Dealers Association (new-car dealers) and the Georgia Independent Automobile Dealers Association (used-car dealers) have contributed about $1.1 million to the campaigns of lawmakers and top state officials in the past decade.

Lt. Gov. Casey Cagle, the Senate president, plays a key role in what gets passed in the session’s final days, and his campaigns have received more than $31,000 from the new-car political action committee, which supports the bill. The car dealership PAC is one of Cagle’s largest political backers.

The used-car dealers lobby, which opposes HB 340, has contributed at least $4,500 to Cagle as well.

Senate President Pro Tem David Shafer, R-Duluth, has received at least $6,500 from the new-car dealers' PAC and $8,750 from the used-car dealers lobby.

The new-car dealers’ lobby also helped pay for a $4,000 dinner in February with the House Ways and Means Committee, which votes on tax legislation. The dinner is an annual event during the session, and the dealers’ lobby chips in, along with lobbyists for companies such as Delta Air Lines, which was hoping for a tax break on jet fuel this session.

Under HB 340, used-cars buyers would be charged the 7 percent motor vehicles tax on the sales price or the state’s book value of the motor vehicle, whichever is higher.

Generally, the sales price is higher.

Currently, new cars are taxed based on that formula, whereas used cars are taxed at the typically lower book value.

So, if somebody buys a used car for $10,000 and owes the 7 percent tax, but the state book value on the vehicle is $8,000, that person pays the taxes on the $8,000, not on what he or she paid for it. The difference in taxes would be $140 in that scenario.

The tax rate is currently lower for people, often with bad credit, who buy from used-car dealers who extend them credit. Those dealers have the potential to make good money off the interest.

The new-car lobby says the bill would merely force used-car buyers to pay the tax under the same system that governs new-car buyers.

The current system, said Lea Kirschner, vice president of the Georgia Automobile Dealers Association, “makes absolutely no sense.”

“The fact is, this is not a tax increase” on used-car buyers, she said. “This eliminates a loophole in the law. There is no rational reason for it.”

That “loophole,” she said, was created when lawmakers created the title fee that went into effect in 2013 to phase out the property tax on cars.

Before that change, she said, used-car buyers paid the same sales taxes as new-car buyers, using the same formula. And the sale of cars between individuals — rather than through dealers — often went untaxed.

In many cases, that 2013 change produced a big tax increase for individuals who bought cars from each other, something dealers gladly supported for competitive reasons.

Even opponents of the new bill say some dealers have “gamed the system” by artificially inflating the value of trade-ins but then having the car that’s purchased taxed at the book value. That made the difference between the two relatively small and left little to tax.

State Rep. Shaw Blackmon, R-Bonaire, said Georgia is the only state that differentiates between new and used cars when deciding how to tax sales.

But Lee Cavender, a Gainesville used-car salesman, said the General Assembly made a conscious decision to “give tax relief for used-car buyers” when they set up the new system.

“Going to the higher (price) is nothing but a tremendous tax increase,” he said.

State Sen. Renee Unterman, R-Buford, a member of the Senate Finance Committee, was sympathetic to that argument.

“It was a conscious effort,” Unterman said. “I feel good about the decision we made.

“We’re taking care of poor people,” she added. “These are people trying to go to work every day. This is the middle-income people who don’t have the means. They can’t lease a car, they can’t buy a $40,000 car. They can buy a $12,000 car and hope it works.”

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