Boost in Georgia tax on used-car sales advances

A key Senate committee backed legislation Monday that could mean a $200 million-a-year tax hike for used-car buyers.

Supporters of House Bill 340 — which is backed by new-car dealers — view it as cleaning up a loophole that currently allows used-car dealers to get an unfair competitive advantage on taxes and to sometimes scam the system.

The Senate Finance Committee approved the bill by state Rep. Shaw Blackmon, R-Bonaire, after a lengthy discussion, but it put off debate on several other major bills on its agenda until Wednesday. Included among the bills delayed are measures to lower the maximum state income tax rate and to make e-retailers and ride-share companies such as Uber collect sales taxes.

Who ultimately wins one of the General Assembly’s hottest business battles — over how cars are taxed — probably won’t be decided until the final days of the General Assembly’s session. The measure now goes to the full Senate for a vote.

State estimates say that by fiscal 2019 — the first full year the law would be in effect — the proposed changes in how used cars are taxed could mean an extra $237 million in title fee payments. That could rise to $268 million by 2022. Those numbers may have changed as the bill has moved through the legislative process.

Another part of the legislation would lower the bill on the same tax to those who lease cars, cutting their tab by up to $74 million in 2019, a number that could grow to $106 million by 2022.

Combined, the Georgia Automobile Dealers Association (new-car dealers) and the Georgia Independent Automobile Dealers Association (used-car dealers) have contributed about $1.1 million to the campaigns of lawmakers and top state officials in the past decade.

Lt. Gov. Casey Cagle, the Senate president, plays a key role in what gets passed in the session’s final days, and his campaigns have received more than $31,000 from the new-car political action committee, which supports the bill. The car dealership PAC is one of Cagle’s largest political backers.

The lobby for used-car dealers, which opposes HB 340, has contributed at least $4,500 to Cagle.

Under HB 340, used-cars buyers would be charged the 7 percent motor vehicles tax on the sales price of the car or truck sold by a dealer.

Currently, new cars are taxed based on that formula, whereas used cars are taxed at the typically lower book value.

So, if somebody buys a used car for $10,000 and owes the 7 percent tax, but the state book value on the vehicle is $8,000, that person pays the taxes on the $8,000, not on what he or she paid for it. The difference in taxes would be $140 in that scenario.

The tax rate is currently lower for people, often with bad credit, who buy from used-car dealers who extend them credit. Those dealers have the potential to make good money off the interest.

The bill would have charged them taxes based on the higher sales price, rather than the book value, but some committee members objected.

“These are the people struggling the most trying to get a car to get to work,” said state Sen. Mike Williams, R-Cumming. “There is currently a tax break for the working poor, and if we pass this bill, we will eliminate the tax break for the working poor.”

During Monday’s debate, committee members stopped to ask officials with the used-car industry what they thought lawmakers should do about sales where credit is extended. An industry official responded that the committee should leave the law as it is, which would allow such buyers to pay the lower tax rate based on the lower value.

So that’s what the committee did, amending the bill to maintain the status quo.

The Finance Committee also approved a reconstituted version of a House bill that would increase the benefit of donating to rural hospitals.

Lawmakers approved a measure last year that gave Georgians income tax credits worth 70 percent of their donation to struggling rural hospitals. Backers found that they needed to up the incentives because so few people agreed to donate, so the new bill increases the value of the tax credit to 80 percent.

Lawmakers have made $180 million in tax credits available over the next three years to people who donate to about four dozen rural hospitals.

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