Understanding the new car title tax
The old ad valorem tax system will continue to exist for vehicles titled in 2011 or earlier, unless the title is transferred. Owners of vehicles purchased in 2012 have the option to remain under the old ad valorem system or transfer into the new system.
People who moved to Georgia with a car after March 1 will have to pay the new tax on any vehicles entering the state when they register their cars in Georgia. New out-of-state residents will have to pay half the fee up front and will have a year to pay the rest.
Owners of vehicles passed between immediate family members — spouses, parents, children, siblings, grandparents or grandchildren — will pay a reduced fee of 0.5 percent of the car’s worth to title it, provided the full one-time title ad valorem tax already has been paid.
People who were exempt from paying the annual car tax, such as disabled veterans, are exempt from the new tax.
Vehicles older than 1985 that are not required to have titles are only affected if the owner decides to get a title after March 1.
Vehicles that aren’t titled, such as boats and trailers, aren’t affected by the new law.
To calculate how much the new tax would cost you, see www.newtitletax.com
Source: Metro counties, Association County Commissioners of Georgia
The state’s new car tax law is a boon so far for some metro Atlanta counties, which are collecting millions in new tax revenue each month.
For car buyers, it can be a boon or a bust.
Some could pay more and are surprised by the reconfigured tax, designed as a one-time payment to replace the sales and yearly property taxes they paid in past years. Other buyers could pay a little less, if they live in counties that have high sales taxes.
Fulton County resident Lee Newton paid the one-time tax when he bought his 2013 Volkswagen Passat car last August and chose to opt-in early to the new system. He says he’s not concerned about the extra revenue being poured into counties.
“To me, it absolutely is a better deal,” he said. “Not having to worry about the extra payment every year is much nicer than having an additional expense pop up that people oftentimes forget about.”
But not all residents are seeing the benefits of the new tax system. DeKalb resident Jonathan Rawls recently took over the lease to a Mercedes to avoid making a down payment. He was shocked when he received a bill for about $1,700 for a car he’s going to have for less than 2 years.
“I feel that many people may not buy cars as often as they used to because of this or they will try to circumvent the system in other ways,” he said.
In March, the state enacted new rules requiring car buyers to pay a one-time tax to title their car rather than the “birthday” tax due every year. Local governments feared that would result in a drop in revenue, despite the state’s assurance that collections would eventually balance out.
So far, collections are exceeding expectations. In just two months, seven metro Atlanta governments collected a combined $20 million in additional revenue, according to an analysis by the Association County Commissioners of Georgia. Officials say the new money is coming from an increase in car sales, and from person-to-person sales, which were almost impossible to collect sales tax from under the old system.
Though state officials anticipated an initial increase in collections from the new car tax system, “None of them (local governments) thought they would get extra money — a lot were thinking it would be a loss from the very beginning,” said Clint Mueller legislative director with ACCG. “Right now, this is a good thing for counties because it is helping them come out of the recession.”
The change was adopted last year as part of a bigger package of tax cuts championed by Gov. Nathan Deal and other GOP leaders.
Over the next few years the revenue increase is expected to dry up as more people replace their cars and switch to the new one-time payment system, said Kenneth Heaghney, state fiscal economist.
Under the new title tax law, residents buying a new or used car pay a one-time 6.5 percent fee to title their car rather than the annual property tax based on the car’s value. That works out to about $1,300 on a $20,000 car. If you buy at a dealership, you no longer have to pay sales tax, so if the county’s sales tax rate is more than 6.5 percent, you could save under the new system.
For now — and possibly the next four or five years — many counties, cities and schools are reaping the benefits of both tax systems. In April and May, the most current months for which numbers were available, Fulton County collected an extra $6.5 million. Gwinnett and Cobb each collected and extra $4 million under the new system. Cobb officials said they plan to save much of the additional revenue in case counties see a drop in future years.
“It’s much larger than we anticipated. I don’t think anyone had an idea it would be as large as it is,” said Bill Volckmann, Associate Comptroller for Cobb County. “We’re trying to be conservative and we don’t want to spend it as though it is going to last forever.”
State and local officials suspect the strong collections are likely due to an increase in car sales and the fact that more private, or “casual” car sales are being captured under the new system.
Under the old system, collecting sales tax from residents who bought cars through a private sellers was difficult. Most buyers paid no sales tax and only an $18 title fee, a tag fee and the annual birthday tax. This year’s 6.5 percent fee will increase to 6.75 percent next year and 7 percent in 2015.
Not all of Georgia’s local governments are seeing a spike in collections, according to the analysis. Some counties, especially in rural areas, are seeing a slight loss as a result of the new system. Mueller with ACCG said that’s likely because the law is set up to benefit places with more transient residents and vehicle turnover.
The changes are also trickling down to state coffers. Sales tax collections fell for the fourth consecutive month in July, which state officials attribute largely to the end of sales taxes on car purchases. It was partly offset by the new car title fee.
House Majority Leader Larry O’Neal has said the sales tax drop was predictable, but noted that the trend would concern him if it continued deeper into the year.
Despite the strong initial collections in metro counties, many are still skeptical about how the new system will affect tax revenue in the long run.
“We’re seeing an increase in revenue right now, but the question remains, what happens when ad valorem starts dwindling?” said Brent Bennett, DeKalb’s director of vehicle registration. “Will the new tax be enough to compensate for that? That’s the great unknown.”
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