Auto dealers are prime targets for tax audits by the Georgia Department of Revenue. The industry faces many technical tax rules specific to Georgia that are difficult to properly execute on every transaction made by a busy business. With high dollar amount sales at issue, assessments can unfortunately be devastating to businesses. This article serves to break down some of the main tax issues faced by Georgia auto dealers today.

Title Ad Valorem Tax (TAVT)

Like many states, Georgia used to impose sales and use tax on the sale of motor vehicles. However, effective March 1, 2013, this sales tax was repealed and replaced with the Title Ad Valorem Tax, commonly referred to as TAVT. The TAVT is a one-time tax imposed on the fair market value of a motor vehicle. The fair market value is calculated depending on whether the vehicle is new or used. While it is anticipated to raise over the years, the law caps the maximum rate at 9%.

For a new motor vehicle, the fair market value is the greater of the retail selling price or the value listed in the state motor vehicle assessment manual. That’s right – the tax base may be greater than the actual price of the vehicle! Whichever the higher number is, it should be reduced by the trade-in value and any rebate or cash discount provided at the time of sale. Note that the retail selling price includes charges for delivery, freight, doc fees, and other such fees.

For used motor vehicles, the fair market value is the value identified in the state motor vehicle assessment manual. Occasionally a used motor vehicle is not listed in the motor vehicle assessment manual. In such circumstances, the fair market value will be the higher of (1) the value from the bill of sale or (2) the value listed in a used car market guide designated by the Commissioner of the Department of Revenue. As with new motor vehicles, reductions are allowed for trade-ins when the sale is made by a dealer. Such reductions are not allowed, however, for sales made by private individuals.

Certain exemptions from sales and use tax are available when TAVT has been paid. Specifically, leases of vehicles for more than 31 consecutive days for which a state and local TAVT is paid are exempt from monthly sales and use tax. In addition, state and local TAVT fees imposed as a part of the purchase price of a motor vehicle, or any portion of a lease or rental payment attributable to payment of TAVT is exempt as well.

Dealer Sales for Resale

When a dealer purchases a motor vehicle or parts or certain other items for resale, they must do so with a properly executed Form ST-5, Georgia Dealer or Purchaser Exemption Certificate. However, when sales are made to out-of-state dealers, Form ST-4, Out of State Dealer Exemption Certificate, must be used. An out-of-state dealer likely does not know about Form ST-4 and may try to provide their home state’s resale certificate instead. As a result, the Georgia dealer must make sure to obtain this documentation from their out-of-state dealer customer.

Sales of Leases

Rentals of motor vehicles for less than 31 consecutive days are subject to sales and use tax in Georgia. However, leases of vehicles for more than 31 consecutive days are exempt from tax when state and local TAVT is paid.

Dealers must include service charges in the taxable base when collecting and remitting tax on taxable leases. The rental charge includes mileage or time fees along with insurance coverage or collision damage waiver. Added sales of gasoline, tools, etc., are also subject to tax. However, charges for additional insurance are exempt when separately stated.

In addition to the state sales and use tax, Georgia allows municipalities to impose local taxes on the rental of motor vehicles at the rate of 3%. There are limitations to these local taxes, including certain restrictions for special districts. Furthermore, local taxes cannot be imposed when motor vehicles are picked up outside of Georgia and returned in Georgia or when motor vehicles are picked up inside Georgia but returned outside the state.

Sales to Nonresidents for Use Outside Georgia

When a dealer sells a motor vehicle to a nonresident and the nonresident will immediately transport the vehicle for use out-of-state, the sales are exempt from Georgia tax. However, the dealer must obtain an affidavit from the purchaser that states the following: (1) customer’s name and address; (2) the state in which the vehicle will be registered and operated; (3) the make, model, and serial number of the vehicle; and (4) any other information that the state revenue commissioner requires. The dealer must further obtain a Form ST-8, Certificate of Exemption – Nonresident Purchase of a Motor Vehicle, from the customer. Alternatively, if a nonresident purchases a vehicle to be delivered out-of-state, the auto dealer must obtain a valid Form ST-6, Nonresident Certificate of Exemption Purchase of Motor Vehicle.

Loaner, Demonstration, and Display Vehicles

Most dealerships have and use loaner vehicles. When a motor vehicle is withdrawn from inventory for use as a loaner vehicle, it is subject to use tax based on the daily lease value for each day the vehicle is loaned for no charge. Alternatively, if a single vehicle is loaned to the same person for more than 30 days, the dealer is liable for use tax based on the purchase price of the vehicle.

When a motor vehicle is set aside from display or demonstration, tax doesn’t apply unless the vehicle is used for more than six months. Use tax applies to the purchase price of the motor vehicle when the vehicle is used for more than six months. If a demonstration or display vehicle is sold, the sales price is the taxable base of the vehicle.

Repairs, Maintenance, and Warranty

If installation and parts are invoiced in a lump sum amount, the entire transaction is taxable. Alternatively, if the installation is itemized separately from parts and accessories, the charge for labor is not subject to sales tax.

When repairs are performed under a warranty, the sales tax treatment of those repairs is different. Repairs made pursuant to a warranty from the manufacturer or retailer are not subject to tax. In addition, parts used in repairs covered by a manufacturer’s factory warranty are not subject to sales and use tax.

Local Taxes

Where is a car sold? The answer may not be as obvious as it seems. In Georgia, the situs of a retail sale of motor vehicle is the purchaser’s county of motor vehicle registration. Similarly, trailers are taxable at the rate of the county where the trailer will be registered. This rule applies regardless of where the dealer was physically located. These rules of situs are easily confusing in Georgia, however, because watercraft are taxable based upon where the purchaser takes delivery or where first use occurs.

Special districts may impose a Transportation Special Purpose Local Option Sales Tax (T-SPLOST). However, these sales taxes do not apply to any amount over the first $5,000 of any purchase or lease of a motor vehicle. The standard exemption for leases over 31 days for which TAVT has been paid applies here as well. For leases over 31 days, the T-SPLOST will be collected each month rather than in full at the time of purchase.

Auto dealers in Georgia are easy targets for tax audits by the Georgia Department of Revenue. When there exist numerous required forms with which dealers must be familiar and technical, complex laws addressing each and every type of vehicle transaction, it is easy for minor errors to add up quickly on these high dollar amount sales. It is vital for Georgia automobile dealers to educate themselves on Georgia’s tax laws and seek qualified counsel if required to understand their options when facing an audit.

Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is also an adjunct professor and assistant editor to the American Bar Association’s The Sales and Use Tax Deskbook. She can be reached at 954-800-4138 or JeanetteMoffa@FloridaSalesTax.com.

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