The end of the birthday tax in Georgia (House Bill 386)

My birthday is coming up next month and that means I get to pay the annual birthday tax, also known as the automobile ad valorem tax. The Georgia vehicle ad valorem tax is combined with the annual tag fee each year. This year I received a notification in the bill regarding new legislation passed in the 2012 Georgia General Assembly.

Effective March 1, 2013, House Bill 386 removes the sales tax and the annual ad valorem tax on newly -purchased vehicles. It replaces these taxes with a new title tax of 6.5% in 2013 and 6.75% in 2014.

For existing vehicles, the owner will continue to pay the annual ad valorem tax. The new tax phases in each time a vehicle is sold, whether used or new. But wait there’s more. The basis for the new title tax is the fair market value of the vehicle, not the sales price.

My interpretation of this legislation is that it accomplishes two things:

1. It puts automobile private sales on par with sales from a dealer. An advantage that private sales have today is that they there is no sales tax with the transaction. At 6% in Georgia, that’s $600 of sales tax for every $10,000 in a sales price. In the new system, all vehicle sales pay an equal tax and you can’t get around it by selling your family members an automobile for under market value. Dealers will surely like this and my guess is they were part of the lobby to pass the legislation. It undoubtedly creates more tax revenue as well because it captures invisible private sales.

2. It gives the tax authority more cash flow because they are collecting a larger amount of money for the vehicle up front rather than spreading the tax collection out over many years. For vehicle owners that like to trade their car every four or five years this means they will pay more tax than they would under the current ad valorem tax rules. On the flip side if people keep their vehicles for an extended period of time they could pay less tax. It’s a math game and quite a clever move by government.

The Bottom line is that this move is sure to help the government’s bottom line more than mine. But at least I won’t get taxed on my birthday any longer after I sell and repurchase different vehicles.