ATLANTA, Ga. -- By now you've probably heard that the annual "birthday tax" on the cars and trucks you own in Georgia is going away, to be replaced by a new tax.
The question is -- under the new tax, who comes out ahead? You, or the state?
I ran some numbers.
As we've reported, the annual "birthday tax" -- the ad valorem tax that comes due every year on your birthday -- is going away.
That's not all that's going away.
The new law also eliminates alllocal and state sales taxes on new and used car purchases in Georgia.
Instead, everyone is going to pay a one-time-only, 7 percent tax up front, based on the vehicle's fair market value.
So, here's an example.
Let's say you live in Cobb County, and you're buying a new car, a Chevy -- a compact "Cruze." And for this example we'll say you got a good deal, you're going to be able to buy it for $18,000.
Under current law, you have to pay the annual, ad valorem tax in Cobb County for a car of that value -- $220 the first year.
Plus you have to pay Cobb County's 6 percent sales tax, $1,080.
So now your $18,000 car is up to $19,300. And it doesn't stop there. You'llhave to pay the ad valorem tax of close to $220the second year, andnearly that much again the third year, etc.
Obsolete: Because of the new law,The Georgia Department of Revenue's ad valorem tax estimator on vehicles will no longer be needed in a few years, once the vehicles currently on the road have aged out and have been traded, or sold, out of existence.
Under the new tax, you'd pay 7 percent up front:$1,260.
And that's all.
You would not pay anything more in taxes.
You would not pay any sales tax, and you would not pay any ad valorem tax.
You would pay $18,000 plus $1,260, a total of$19,260.
And that is about the same as you'd be paying now at the time of sale.
And since there is no annual ad valorem tax, you would not be paying,in subsequent years, any extra, as you must, now.
The state says there are probably other scenarios where the new system will end up costing slightly more than the current system.
But for most, basic transactions, the purchaser will pay less than is paid now.
Someone who buys a $40,000 SUV and who now pays a sales tax of, say, 7 percent ($2,800) -- which is the rate in most counties and municipalities in Georgia -- will, instead, pay a 7 percent "title tax" of $2,800. But again, there will be no annual, ad valorem tax to pay in addition to the 7 percent tax.
"Most people will see a benefit, depending upon how long they keep their car," said the sponsor of the legislation, Rep. Tom Rice, (R) Norcross, on Friday. "We think it'll be a good deal because most cars stay on the road in America, right now, an average -- an average -- of eleven years." That will be eleven years of not paying an ad valorem tax every year.
The transition to the new tax will begin this year, as soon as Gov. Nathan Deal actually signs the legislation into law, which he is expected to do in the next few weeks.
Rep. Rice said that anyone who buys a new or used vehicle in 2012, but wants to be included in the new law which will formally takeeffect on March 1, 2013, may do so. The state will allow 2012 purchasers -- who, in 2012, pay the state sales tax as well as the first year of ad valorem tax on the vehicle -- to apply those 2012 taxes toward the new "title tax" next year and be done with sales taxes and ad valorem taxes on their vehicle forever.
Those who own vehicles they bought in 2011 or earlier will have to continue to pay the annual, ad valorem tax on their vehicles until they trade or sell them.
The precise percentages of the new "title tax" are:
6.50% in 2013
6.75% in 2014
7.00% in 2015 and subsequent years
Again, the "title tax" is figured as a percentage of the vehicle's fair market value, not as a percentage of the amount the purchaser paid for the vehicle.
The title tax will not be allowed as a tax deduction, as the ad valorem tax is.