Wednesday, 06 February 2013 17:29

New Georgia Law Increases Tax on Car Leases

Georgians who lease a car starting March 1 will pay more in taxes than if they buy the vehicle outright, a change that has angered some motorists and one lawmakers are working to address, the Atlanta Journal-Constitution recently reported.

In lawmakers’ haste to push through last year’s bill that would phase out the so-called “birthday tax” on cars, they failed to account for the nuances of car leases, which account for 42% of new car transactions in Georgia.

When a car is leased, the consumer pays an initial sales tax as well as monthly sales taxes. On a straight purchase, the consumer only pays the initial sales tax and an annual property tax on his or her birthday.

The massive tax bill signed into law in 2012 eliminates both the initial sales tax and the birthday tax for car buyers and replaces them with a single title tax when the vehicle is purchased. That tax will be 6.5% as of March 1, and it could go as high as 9% if the state revenue falls short.

Under the new law, however, those who lease cars will pay the same 6.5% title tax when the deal is signed but will continue to pay the monthly sales tax based on their local jurisdiction’s rate. While the leasing company actually pays the title tax, that expense is typically passed on to the consumer.

While most Georgia counties have a sales tax rate higher than the 6.5%, a few, such as Cobb and Cherokee, assess 6% on purchases. People who lease cars in those counties will then pay a higher tax rate under the new law.

Even in counties with a higher sales tax rate, the overall effect would be to make leases more of a tax burden than outright buying a car and less attractive to consumers like Eric Hankinson of Roswell.

Hankinson has leased nine vehicles in the past and does his homework to determine if a lease or purchase makes the most financial sense. If the law takes effect without changes, Hankinson said it’s doubtful he’d sign lease number 10.

Rep. Tom Rice, R-Norcross, has filed legislation to try to address the problem. House Bill 80 would lower the initial title tax on leases to 4%, but would not address the monthly sales tax. Negotiations are continuing among lawmakers, car dealers and companies that typically finance leases, meaning that rate could change.

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