When it comes to car rentals and leases, the first thing that needs to be determined is the definition of both “rental” and “lease.” These two terms cannot be used interchangeably because they constitute two entirely different transactions, with two entirely different tax implications.
For the Purpose of TAVT, What is a “Lease” and “Rental”?
Under O.C.G.A. § 48-5C-1:
- A “lease” is any transfer of possession or control of a motor vehicle for a term lasting 31 or more consecutive days for consideration.
- A “rental” is any transfer of possession or control of a motor vehicle for a term lasting 31 consecutive days or fewer.
For a vehicle that will be leased, the TAVT (Title Ad Valorem Tax) is due along with the application for a certificate of title within thirty days of the date of purchase.
Is the Lease or Rental of an Automobile Subject to Sales and Use Tax?
- Rental charges are subject to sales and use tax based on the county where the motor vehicle is to be registered.
- Lease payments are exempt from sales and use tax.
- For rentals, the tax is computed on the gross rental charge.
Key Differences Between Lease and Rental Taxation in Georgia
Rental:
- When a car is rented to another entity, there is a rental agreement.
- The title remains in the owner’s name.
- Sales tax is paid on the rental at the normal state plus county tax rates.
Lease:
- When a car is leased, there is NO SALES TAX.
- There is no sales tax on a car lease because you are paying TAVT (Title Ad Valorem Tax).
Clarification from the Georgia Department of Revenue
The Georgia Department of Revenue states that sales tax applies to car rentals, which can sometimes create confusion about the law:
- Sales tax applies to car rentals under 31 days.
- If you are renting a car and the rental agreement clearly states this, you will be paying sales tax.
- If you rent the car for over 31 days, it does not become a lease automatically where you stop paying tax.
- A true lease requires:
- A lease agreement
- Residual value terms
- Title transfer
- Payment of TAVT
Summary
Rental
- Duration: 31 days or fewer
- Tax Applicable: Sales & Use Tax
- Notes: Title stays with owner
Lease
- Duration: 31 days or more
- Tax Applicable: TAVT (No Sales Tax)
- Notes: Title transfer, lease agreement required
Note: Georgia’s car rental and leasing tax laws are highly specific. Misunderstanding the definitions can lead to improper application of taxes.
Frequently Asked Questions
What is the main difference between a car lease and a rental in Georgia?
A lease is defined as a transfer of a vehicle for 31 or more consecutive days, while a rental is for 31 days or fewer. This distinction directly affects the type of tax owed, TAVT applies to leases, and sales & use tax applies to rentals.
Do I have to pay sales tax when leasing a car in Georgia?
No, lease payments are exempt from sales and use tax in Georgia. Instead, you pay the Title Ad Valorem Tax (TAVT) upfront when the lease is initiated and the title is applied for.
When is sales tax applied to a car rental?
Sales tax is applied to all car rentals lasting 31 days or fewer. The tax is calculated based on the gross rental charge and the applicable state and county tax rates.
Does renting a car for more than 31 days qualify as a lease?
Not automatically. Even if a rental exceeds 31 days, it doesn’t qualify as a lease unless it meets specific criteria, including a formal lease agreement, residual value terms, title transfer, and payment of TAVT.
What happens if I misclassify a lease as a rental or vice versa?
Misclassifying the transaction can lead to incorrect tax filings and possible penalties. Georgia’s laws are specific, so understanding the difference and complying with TAVT or sales tax obligations is crucial.