April 23, 2013

Can you explain the new car tax?

Dear Consumer Ed:

I’m confused about the new car tax.  If I sell my car to my sister, will she have to pay tax?

Consumer Ed says: 

For the answer to this question, we went to the Georgia Department of Revenue, for whose assistance we are most grateful.

Let’s look at the specifics about the tax before exploring whether your sister will have to pay the new tax.  It is called the title ad valorem tax (“TAVT”) and was passed by the 2012 Georgia General Assembly with additional amendments made during the recent 2013 legislative session.  It became effective on March 1, 2013, and, until December 31, 2013, the current TAVT rate is 6.5% multiplied by the “Fair Market Value” of the vehicle.  To determine the Fair Market Value of a new motor vehicle, use the greater of the retail selling price or the value listed in the Department of Revenue motor vehicle assessment manual. Then reduce that number by any rebate or cash discounts you received from the dealer. For a used vehicle, the Fair Market Value is the usually the amount listed in the Department of Revenue motor vehicle assessment manual.  Whether the motor vehicle is new or used, there is a reduction for the trade-in value before the TAVT is imposed when the vehicle is purchased at a dealership.  

With the new tax, vehicles purchased on or after March 1, 2013 and titled in Georgia are exempt from sales and use tax and the annual ad valorem tax, i.e. the “birthday tax”.  Instead, the purchased vehicles are subject to the new, one-time TAVT.  Vehicles purchased through a private sale (non-dealer sale) that were previously exempt from sales tax are now subject to the TAVT.  If you purchased the car between January 1, 2012 and March 1, 2013 and had the car titled in Georgia, you are eligible to opt in to the new TAVT system, which will allow you to avoid the annual ad valorem tax after you opt in.  If you qualify to opt in, you will get credit for any sales tax and ad valorem tax previously paid up to the amount of TAVT due.  However, if the sales tax and ad valorem tax previously paid is less than the TAVT due, you will need to make up the difference when you opt in.  This option may only be exercised through February 28, 2014.

Your sister, as an immediate family member, may or may not have to pay the TAVT when she purchases the car from you.  An "immediate family member" is defined as your spouse, parent, child, sibling, grandparent or grandchild.  It is very important to remember that both you and your sister will have to complete an affidavit affirming that you are immediate family members.  

For immediate family members who buy or inherit a vehicle, their obligation to pay the TAVT depends on whether you, as the former owner of the vehicle, have already paid the TAVT.  If you have not paid the TAVT and are paying annual ad valorem tax on the vehicle, your sister has two options: (1) continue to pay annual ad valorem tax on the vehicle, and therefore not be subject to the TAVT; or (2) your sister may elect, at the time she purchases your vehicle, to pay the TAVT based on the current Fair Market Value of the vehicle at the applicable rate for the current year (i.e. 6.5% of the Fair Market Value for 2013) On the other hand, if you were eligible to opt in to the new system and did opt in, or if you otherwise paid the TAVT when you first acquired the vehicle, then her TAVT rate will be 0.50% of the value of the car when she purchases it from you. 

Don’t forget that vehicles subject to the TAVT are still subject to the $18 title application fee at the time the vehicle is titled.  Vehicle owners must also annually register their vehicles in their home county and pay the associated $20 renewal fee.  

For more information about the TAVT, visit the Motor Vehicle section of the Georgia Department of Revenue website.

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