Revisiting Georgia’s Title Ad Valorem Tax System: A billion-dollar raid on local government treasuries

By Charles Hayslett

(Author’s Note: This is the first of at least two and probably three pieces I’m writing on the impact on local governments of Georgia’s transition from a traditional sales-and-property tax system of taxing motor vehicles to a complicated new “title ad valorem tax” system.  This is an overview and stage-setter; deeper dives into regional and county-level impacts will follow.)

Think of this as a political cold case, an opportunity to revisit the scene of an old legislative crime five years after the fact and assess the violence with fresh eyes.  Our case today is a bill passed by the Georgia General Assembly in 2012.  Known officially as House Bill 386, this measure was widely ballyhooed as “tax reform.”  This alone should have been evidence enough that the General Assembly was up to no good.  Further evidence lies in the timing.  The 56-page bill was shared with members of a specially-appointed House-Senate committee on taxation a scant 10 days before the 2012 session was scheduled to end.  When then-House Minority Leader (and current Democratic gubernatorial candidate) Stacey Abrams had the temerity to ask about fiscal models that had been used to gauge the financial impact of HB 386’s provisions, then-House Ways and Means Committee Chairman Mickey Channell “responded curtly,” according to one report, that “we don’t have that available right now.”

Not to worry.  The very next day HB 386 was approved overwhelmingly by the full House of Representatives (only nine members, all Democrats, mustered the nerve to vote against it; Abrams wasn’t one of them) and immediately transmitted to the Senate, which passed it unanimously two days later.  Less than a hundred hours after it rolled off the legislative printing press, this 2,000-line bill was out of the General Assembly and on its way to Governor Nathan Deal, who called it “good news” and said: “It means our state is more competitive and is a state where we can grow jobs.”

Revisiting HB 386 five years later is a little like going back to the scene of a massacre and discovering that nobody bothered to remove all the bodies, let alone mop up the blood.  The joint House-Senate taxation committee was supposed to be following up on the work of a 2010 Special Council on Tax Reform and Fairness for Georgians.  Created by state law, the Council was headed by former Atlanta Olympics czar A.D. Frazier and made up of Frazier and nine other well-respected business leaders and actual economists.  This group produced a thoughtful 34-page report that proposed pretty reasonable changes to the full range of taxes imposed by the state of Georgia.

Those recommendations were, naturally, largely ignored.  Instead, the leaders of the joint House-Senate tax committee ginned up a grab-bag of goodies for a lot of the usual suspects, including agricultural equipment retailers and Delta Air Lines.  But all that didn’t get much media attention, thanks to what one report described as the “wham-bam-thank-you-ma’am” means by which the legislation was rammed through the General Assembly.  Instead, the bill’s legislative champions focused on the lead section of the bill, which overhauled the way motor vehicles are taxed in Georgia, and so did the press.

For now, so will we.  To cut to the chase, this section of the bill alone amounted to a massive raid on local government treasuries by state government.  Working with Georgia Department of Revenue data detailed in a recent report by Georgia State University’s Fiscal Research Center, it’s now clear that this one provision of HB 386 shifted something on the order a billion dollars in motor vehicle taxes from Georgia’s cities, counties and school systems to the state treasury between 2014 and 2016 alone.  Once 2017 numbers are in, that cumulative total will almost certainly rise even further.

Here’s how it worked.  Before HB 386, Georgians paid two types of taxes on their motor vehicles – a sales tax at the time of purchase and then an ad valorem (or property) tax every year thereafter.  These two taxes were important sources of revenue for Georgia’s state and local governments.  The sales tax, paid at the time of purchase, was divided between the state and local governments; the state got its 4 percent and the counties got whatever their local sales tax was set at – generally between 2 and 4 percent.  In subsequent years, the counties collected the ad valorem taxes and divided the proceeds three ways amongst themselves and local municipal governments and school systems.  As motor vehicles aged, these ad valorem taxes declined.

It was a tried and true system, but former House Speaker Glenn Richardson (R-Douglasville) had begun to rail some years before about the fact that these ad valorem taxes came due in the month in which the motor vehicle owner was born.  He complained bitterly that this amounted to a “birthday tax” on hapless Georgians and set out to do away with it.  Richardson himself would leave office in disgrace a year or so afterward, but killing the birthday tax for some reason remained a cause celebre among House Republicans and became a key rallying cry in support of HB 386.

In place of the old sales-and-property tax system and its evil birthday tax, they unveiled what they called the Title Ad Valorem Tax.  Now known as TAVT, this is a convoluted Frankenstein monster of a system that appears (fortunately for the rest of America) to be unique to the Great State of Georgia.  (I’ve Googled it and called everybody I can think of to call, and I can’t find anybody who’s aware of anything like it anywhere else in the country.)

Basically, it functions like a sales tax that is paid at the time of purchase.  When it first went into effect, the new TAVT tax was set at 6.5 percent of the cost of the vehicle and the proceeds were split between the state and the county; initially, under HB 386, the state got 57 percent of that 6.5 percent and the local county got the other 43 percent.  Since that first year the rate has increased, first to 6.75 percent and now to 7 percent (where it will likely stay) and the split (again, as provided for in the legislation) has been shifting in favor of the local governments.  As of 2016, that 7 percent tax was being split 53.5 percent-to-46.5 percent in favor of the state.  Over time, the law calls for the split to shift incrementally in favor of the local governments.

That was one of two major elements to the HB 386 overhaul of the way the state taxes motor vehicles.  The other was that the state began taxing two new categories of motor vehicles: casual sales between individuals (this was one of the few Special Council recommendations that survived the legislative shredder), and motor vehicles that are moved into the state.  Bottom line, the TAVT section of HB 386 did away with annual ad valorem taxes, sought to replace that lost revenue with the new “title” taxes on casual sales and motor vehicles moved in from out of state, and changed the way the overall pie was carved up.

By my arithmetic, that trade-off has so far turned out to be about a wash – maybe even a little bit of an overall money-loser.  Under the new TAVT, actual total motor vehicle revenue for the state and local government combined has grown from $1.67 billion in 2012 to $2.01 billion in 2016.  If the old system had remained in place and the state and local tax streams had continued to increase at their respective 2010-2012 growth rates, total revenues for 2016 would have hit $2.05 billion.

While much of the debate that surrounded HB 386 has been lost in the political fog that usually envelops the State Capitol, various legislators, lobbyists and policy wonks tell me there was a lot of discussion about the need to “keep local governments whole” – at least over the long haul.  At that, HB 386 has so far failed miserably.

The table below (using DOR data drawn from the GSU Fiscal Research Center report) compares actual motor vehicle revenues collected by the state and local governments with (for the years 2014 through 2016) what they would have collected if their revenues had been allowed to continue to grow at their 2010-2012 growth rates, which averaged 3.7 percent per year for state government and 5.9 percent per year for local governments.  (2013 was omitted from the Fiscal Research Center report because it was a transition year.)

The two left-hand columns show actual state and local government motor vehicle revenue totals for the years shown, as reported in the GSU Fiscal Research Center report.  The two right-hand columns repeat the actual data for 2010 through 2012 and show what the state and local motor vehicle revenues would have been if the old sales-and-property tax system had been left in place and state and local recent growth rates had continued.

Bottom line, the state government’s actual revenues for the period 2014-2016 are just over a billion dollars higher than they would have under the old system and at the old growth rate, while local governments are down a cumulative $876 million.

In a follow-up post soon, I’ll take a deeper dive into how TAVT affected counties in various parts of the state.  Spoiler alert: Rural counties got screwed the worst.