Auto lenders decry Georgia's tax hike on leases

Starting March 1, the state of Georgia is expected to implement a new tax that auto lenders complain would put a higher tax burden on cars acquired through a lease than on vehicles purchased using a loan or cash.

That could hurt lease volume in the state, say two trade groups whose members offer leases, the National Vehicle Leasing Association in Hanover, Md., and the American Financial Services Association, headquartered in Washington.

"If the consumer has to pay more to lease, nobody's going to lease," says Danielle Fagre Arlowe, AFSA's senior vice president of state government affairs. The associations want the state legislature to pass legislation that would level the tax between loan and lease customers.

The disparity was created when Georgia passed new taxes last spring that take effect March 1 of this year. On new- or used-car purchases, the new law imposes a statewide 6.5 percent tax based on the vehicle's "fair market value" as determined by the state Department of Revenue.

The new tax is in fact a bit lower on average than the old tax, which was based on a combination of state and county taxes, according to state economist Ken Heaghney.

The new law also eliminates another state tax on autos, informally called a birthday tax, which Georgia residents pay annually. That tax decreases as the value of the vehicle decreases.

The new law makes up for a lower overall rate in part by imposing the new tax on private sales between individuals.

For leases, the old tax structure imposed a similar tax to a purchase, with one exception: On a lease, the old tax was added to the customer's monthly lease payment; on a purchase, the old tax was a one-time payment

The new law imposes a one-time tax on a lease but also leaves a tax on monthly lease payments. The net effect, Arlowe says, is roughly to double the tax on leases. In a phone interview last week, she speculated that the effect on leases was an "unintended consequence."

Technically, the leasing company has to pay the one-time tax, not the consumer. But the additional cost will be passed on to the consumer, the leasing groups say.

"People lease cars because of the lower payment," NVLA Executive Director Jack Tracey says. "If you double the taxes, you're really going to suppress the market."