Counties, dealers still adjusting to Title Ad Valorem Tax

By Taylor West

Just over a year into the new Title Ad Valorem Tax system, the technical kinks are being worked out and people are adjusting to the changes, but those changes have created systematic winners and losers.

The TAVT, which officially began March 1, 2013, replaced the 7 percent sales tax and annual ad valorem tax, or Birthday tax — and is going to cost Georgia’s local counties and school systems millions.

“We are starting to see where the money is going to flow,” said Athens-Clarke County Tax Commissioner Mitch Schrader.

The new TAVT is a one-time tax on newly purchased vehicles, whether new or used, based on the fair market value of the car, according to the ACC website.

Beginning at 6.5 percent in 2013 and increasing to 6.75 percent this year, the TAVT will increase to 7 percent in 2015 and, based on the legislation, the state has the right to increase the tax up to 9 percent.

As a consumer who bought a car in the new system, Schrader said he sees the positive aspects of the tax — he will pay less overall for his purchase.

“My wife and I just bought a new car last year and we paid TAVT tax,” he said. “It’s kind of interesting because now we don’t have to pay Birthday tax on that car ever.”

Far cheaper than the potentially hundreds of dollars spent annually on the Birthday tax, now all he will have pay annually is a $20 renewal fee.Even so, Schrader said he does not support the tax because of its detrimental effect on local governments.

Georgia General Assembly, Schrader said, failed to pass House Bill 386 two times before it was passed almost unanimously.

“I believe that it passed by such an overwhelming majority because it was attached to a piece of legislation at the very end of the session,” he said. “The bill [TAVT was attached to] accomplished … something that was considered an economic boost for the state of Georgia, and that was this piece of legislation also exempted sales tax on electricity for manufacturing.”

The exemption on sales tax for electricity, Schrader said, will cost the state around $200 million, and the TAVT was tacked on to make up that money. Approximately 55 percent of the money taken in from the new tax will go to the state and 45 percent will go to the county.

And while it is going to keep the state breaking even, or even making money, the repercussions for local governments are not as positive.

“There is a dark side to the bill,” Schrader said.

With no new cash coming in to make up for the decreasing Birthday tax income, local governments and the Board of Education, Schrader said, will end up losing millions of dollars.

“In my opinion it is a terrible piece of legislation,” he said. “It should never have passed.”

The old Birthday tax brought in a significant amount of money to the local government and the BOE, Schrader said — approximately 39 percent and 60 percent respectively with 1 percent going to the state. Now the local government and the BOE will be out millions of dollars annually.

The BOE could not be reached for comment.

The state, Schrader said, simply needed to generate revenue to make up for the money it is losing by giving industry a break on sales taxes.

And with the loss of Birthday tax, Schrader said funding for the Tag Office will no longer be there. In the coming years as cars new and used are sold and become part of the TAVT system, He believes the office will no longer make money or be able to break even.

“[The Birthday tax] is how we funded our office,” he said. “So the county is going to have to find another way to fund it. Instead of being self sufficient, I see the tag office in five or six years being more of an operational burden. — Before we generated money … but in the future I really believe our overhead is going to exceed our income.”

While he is not happy with the tax, Schrader said opinions have been varied.

People buying new or used cars from a dealer are actually breaking even or saving money at this point because, Schrader said, the TAVT essentially replaces the sales tax and the lack of Birthday tax saves money every year.

Even if the tax goes up to 9 percent next year, people will be able to break even within a few years of owning a vehicle without the Birthday tax.

Conversely, those moving to Georgia and bringing out of state cars with them as well as people who buy cars through casual sales, which had no sales tax associated with them under the old system, get the short end of the stick.

Any car, whether it is a casual sale or a car that was purchased in another state with a sales tax already paid on it, needs a valid Georgia tag, which, Schrader said, now cost 6.75 percent of the value of their car in addition to the $38 required in previous years.

People purchasing from a dealer would have to pay essentially the same amount anyway, but that’s a 6.75 percent lump sum those doing casual sales would never have had to pay and out of state residents have to pay on top of the sales tax they already paid in their previous state.

“[Out of state and casual sale] individuals are not really happy because in the past there was no six-and-three-quarter percent up front fee to go get a tag,” he said. “Their tag is not going to cost them $38 the first time, it’s going to cost them hundreds, maybe even thousands if they buy a really expensive car.”

Debra Ibarra, a title clerk at Athens Ford, said she has not had any complaints about the financial change brought about by the tax; rather customers have been frustrated with how slow some of the paper work has been.

“Well the good thing is we can do everything over the Internet,” she said. “The bad thing is the state is kind of slow people don’t receive their tags in the two week they are told. It could possibly be up to a month.”

But, she said, it depends on the customer.

“I have had customers that did complain just for the fact that they didn’t receive their tag,” she said, “but some customers don’t mind as long as we show them proof that the car is registered.”

Dealers, Schrader said, are still having a hard time with the new rules — how to value the cars properly so the right amount of money is paid.

Though he said they are getting better, problems with selecting the right value for a car to be taxed by is still causing some unnecessary administrative work.

“We end up with either getting shorted… And we can’t process [tags] without collecting all the money,” he said. “And that too I think is part of the learning process. As we become more educated and identify the problems, the dealerships become more aware of how to deal with them.”

Schrader said hang-ups at the state level have also been a problem from his end.

Ibarra said despite an increase in calls regarding bills of sale for tax purposes and the tedious tag process, the TAVT has not adversely affected the dealership.

“At the beginning it was hard but other than that it has been all good,” she said. “I think our sales actually grew.”

Whether the TAVT is fundamentally a beneficial or detrimental bill or not, Schrader said the bill isn’t going anywhere — “I think we are in it for the long haul.”

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