FL CAR DEALERS: GEORGIA SALES TAX ON CARS IS NOW ZERO!
The purpose of this article is to inform Florida car dealers and prospective car buyers from Georgia that there has been a recent change in Georgia (GA) law that has an impact on the sales taxes collected/paid on the purchase of a new or used vehicle in Florida. This means that it is now possible for a Georgia resident to buy a car in Florida, drive it home, and pay NO FLORIDA SALES TAX – if the proper steps are taken. The change in law is catching a lot of Florida car dealers off guard and car purchasers are overpaying Florida sales tax – and are often upset with the car dealer. We've received a couple of dozen calls over this issue in the last few months and we thought it was time to help spread the word to help FL car dealers and car purchasers from GA alike.
ARE YOU A GEORGIA RESIDENT?If you purchased a car from a Florida car dealer and were charged Florida Sales Tax, then print out this article for the FL car dealer. Ask them to call me for a free initial consultation. If you are a Georgia resident and properly filled out a DR-123 form, then the dealer should not have charged you Florida sales tax. This is a recent change and not all dealers have updated their procedures. This will help the car dealer as well because they will be able to sell cars cheaper without having to charge the tax.
To understand the how the change in GA law affects sales tax in Florida, we must first examine Florida's strange sales tax law on vehicles. Each state has their own sales tax rate and Florida happens to have one of the higher sales tax rates in the country. Historically, this had a negative impact on Florida car dealers. Consider what tourist would want to buy a car in Florida and pay up to 7.5% sales tax (6% state plus up to 1.5% local) when the tourist could buy a virtually identical car in their home state and pay considerably less sales tax. Florida was also losing out on this potentially lucrative sales tax revenue because many tourists where not buying cars in Florida.
So the Florida car dealers banded together and lobbied a receptive Florida legislature for a change that would help both the car dealers sell more cars and Florida raise more revenue. The new Florida law allowed someone from another state to buy a car in Florida, drive it off the lot, and only have to pay sales tax at the purchaser's home state sales tax rate on cars (presuming that the purchaser agreed to take the car out of Florida within a limited time frame). The sales tax would still be a Florida sales tax payable to Florida, but if the purchaser's home state had a 3% sales tax on cars, then 3% would be all the Florida sales tax the purchaser would have to pay. The purchaser's home state would be required to give the purchaser credit for the sales tax paid to Florida. So the car dealer was no longer disadvantaged by a high state sales tax rate and Florida received the sales tax revenue on the additional sales.
Win-win scenario, right? Well… more like a win, win, lose, lose situation. While Florida car dealers and the state of Florida benefited from this change in Florida law, but both the out of state car dealers and the revenue departments of other states were losing car sales and revenue. Now we have a potential battle between the states over car sales and sales tax revenue and Georgia has more miles of border with Florida than any other state. This is where Georgia's law comes into play.
Florida's law allows the purchasers to pay their home state's "sales tax imposed on vehicles." If a purchaser was from a state with no sales tax on vehicles (e.g. Montana), then the Florida dealer did not have to charge any Florida sales tax on the sale. Georgia car dealers and Georgia's Revenue Department, being most affected by Florida sneaky law, decided to tackle the problem legislatively in Georgia. If Georgia did not have a sales tax on vehicles, then tourists visiting Florida would not have to pay sales tax when purchasing vehicles in Florida. But Georgia, of course, did not want to give up ALL revenue from car sales, so this is where Georgia got very creative. Georgia changed its tax on vehicles from a sales tax to an "ad valorem tax," essentially a property tax. According to the Georgia Department of Revenue's web site:
Vehicles purchased on or after March 1, 2013 and titled in this state will be exempt from sales and use tax and the annual ad valorem tax. Instead, these vehicles will be subject to a new, one-time title ad valorem tax that is based on the value of the vehicle.
This simple change in law dramatically affected the situation. Because Georgia no longer has a sales tax on cars, Georgia tourists can now buy a car in Florida with NO FLORIDA SALES TAX as long as the proper forms are signed (DR-123) and the car is taken out of the state within the required period of time. The Georgia resident still has to pay the Georgia ad valorem tax when they register the car in Georgia. This allows Georgia to get all the tax revenue from Florida car purchases by Georgia residents, leaving Florida with nothing. The benefit to Georgia car dealers is not readily apparent, but the situation between Florida and Georgia's taxing authorities is significant.
What we've been hearing about is that Florida car dealers are not aware of the change in Georgia law and they are still charging Florida sales tax at the old Georgia rate. From the purchaser's point of view, the mistake by a Florida car dealer can be very costly because Georgia will refuse to give the purchaser credit for the sales tax illegally paid to Florida. Although an honest mistake, this is not legal and the GA purchasers are entitled to a refund of the sales tax collected. Florida car dealers facing this situation have two choices.
- Give the purchase a refund of the sales tax collected and take a credit for the refund on the next Florida sales tax return (well documenting the reason for the credit both in the car's deal jacket and the summary report used to prepare the sales tax return), or
- Assign the right to the refund to the purchaser so the purchaser can apply for the refund directly to the Florida Department of Revenue.
Option 1 is probably the quickest way of handling the matter as long as all the documentation is saved properly for a potential Florida sales tax audit. If the car dealer is unsure of the situation or not confident in its own record keeping, then the assigning the right to the refund is perfectly legal, but it will take months for the purchaser to get this refund.
If a dealer chooses to do neither and simply refuses to address the issue with the customer, then the purchaser's only recourse is to sue the car dealer for the refund because the Florida Department of Revenue will not issue refunds directly to a car purchaser without proof the car dealer collected and remitted the tax. I don't recommend car dealers ignore the situation and face potential controversy costs over something so simple to deal with.
NOTE: A purchaser must claim the refund from the dealer or, if assigned by the dealer, from the Florida Department of Revenue within 3 years of the date the tax is paid.
I hope this helps clarify the situation with Georgia's change in law and how it impacts Florida sales tax on purchases of cars in Florida. Whether you are a car dealer or car purchaser, if you have any other questions, then please don't hesitate to contact our law firm for a FREE INITIAL CONSULTATION.
ABOUT THE AUTHOR: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton is in charge of the Tampa office of the firm and his primary practice area is Florida sales and use tax controversy. Mr. Sutton worked in the State and Local Tax department of a "big five" accounting firm for a number of years and has been an adjunct professor at Stetson University College of Law since 2002 teaching State and Local Taxation. You can read more about Mr. Sutton in his firm BIO.
ADDITIONAL RESOURCES
FL CAR DEALER: WHEN IS A SALE TAX EXEMPT?, published March 17, 2013, by James Sutton CPA, Esq.
FLORIDA MOTOR VEHICLE SALES TAX RATES BY STATE – TIP 13A01-02, published May 1, 2013, by James Sutton, CPA, Esq.
LONGWOOOD USED CAR DEALER JAILED – SALES TAX THEFT, published April 16, 2013, by James Sutton, CPA, Esq.
BOAT CAR PLANE DEALERS: FL SALES TAX FORMS, published June 14, 2013, by Jerry Donnini, Esq.
UPDATE: GEORGIA SALES TAX REFORM, published March, 6, 2014, by Florida Automobile Dealers Association