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Thursday, 14 March 2013 17:43

Georgia’s New Car Tax Gets Fixed for Double Tax on Car Leases

Georgia’s new car tax got fixed after state lawmakers reached agreement March 5 on a deal that won’t automatically give big tax breaks to a large group of used car dealers, The Atlanta Journal-Constitution reported.

The tuneup, crafted with the help of representatives of Gov. Nathan Deal, will fix unintended consequences of a new law that eliminated the state’s hated “birthday tax” on car registrations. A chief problem was a double tax on car leases.

The changes will go into effect as soon as Deal signs the legislation, which is expected to happen quickly.

As lawmakers rushed last year to overhaul the state’s tax code, they failed to account for nuances of car leases, creating the double tax. The compromise solves that problem, which is a big deal in a state where, according to Experian, leases account for 33.8% of all new car transactions.

Senate President Pro Tem David Shafer, R-Duluth, said of the compromise, House Bill 266: “This legislation addresses some of the transitional issues that have been raised. No legislation is perfect.”

Those transitional issues involved so-called “buy here, pay here” dealers, who typically charge high interest to customers with bad credit. Once a customer defaults on the loan, the car is repossessed, the dealer sells it again and the cycle continues.

Under last year’s tax overhaul, and in a version of a bill proposed by the House earlier this year, those dealers would have to pay a title tax every time the car is sold. The dealers did not like that idea and initially won a reprieve from the Senate: They would pay 2 percentage points less than the normal title tax every time they sold a car.

But the Senate had defined buy here, pay here dealers to include a much larger group: used-car dealers who have majority ownership in a finance company making the loan to a car buyer. It also included at least a $74 million decrease in state revenue over the next four years, something supporters considered a tax cut but which would come at a time Georgia is still struggling economically.

The House, which was already squabbling with the Senate over whether the House version of the legislation was a hefty tax increase, balked as a result and did not take a vote. Negotiations continued, leading to the Tuesday, March 5 agreement.

Under the deal, the new legislation does not try to define buy here, pay here dealers. It also does not try to regulate them. Instead, it leaves the decision to the state Department of Revenue on whether to create new rules and controls on what so far has been a loosely regulated industry.

If the department does create new regulations, it can then also give those dealers a larger break — 2.5 percentage points — on the normal title tax.

The deal is expected to reduce state revenue by about $20 million through 2017, which Senate supporters touted as a tax cut. It passed unanimously in the House and won by a vote of 42-4 in the Senate.

Mo Thrash, a lobbyist for the Georgia Independent Automobile Dealers Association, said the compromise will be “helpful.”

“In the long run, consumers in this state are going to benefit from this new legislation,” Thrash said. “We’ve had good assistance from leadership in the House and Senate, and we hope through new rules and regulations in the Department of Revenue, buy here, pay here dealers will be able to be regulated and to assist customers who otherwise could not get financing for a motor vehicle in this state.”

House Majority Leader Larry O’Neal, R-Bonaire, who voiced much of the House’s criticism of the Senate’s earlier action on the bill, said the final compromise eased his concerns.

“It certainly is a first big step toward what I needed, which was to get a very clear, concise definition of what the buy here, pay here industry is,” O’Neal said. The Revenue Department will “decide who will qualify for a tax preference,” he said.

The compromise, if signed by the governor, will unfreeze the car leasing industry in Georgia, O’Neal said.

The uncertainty surrounding the double tax all but shut down the leasing of cars in the state. Now, O’Neal said, “we can avoid some of the big confusion that was inevitable.”

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