Tax Reform Less Comprehensive, Ambitious This Year

Today’s Courier Herald Column:

During last year’s session of the General Assembly, “Comprehensive Tax Reform” was a signature piece of legislation which began with great promise but ended with inaction. An initial proposal from a commission appointed by former Governor Sonny Perdue faced tentative support from a new Governor, public backlash over a proposal to add sales taxes to both groceries and an expanded list of services, and an onslaught of lobbyists attaching or removing items to benefit the well heeled and well connected.

What was to be a relatively closed process to ensure the comprehensive nature of the reform became a free for all, with so many revisions requested from the Georgia State economists who were projecting revenue and consequences under competing plans that Representatives began showing up to meetings with differing numbers and calculations. The process collapsed among public distrust of the process, and internal feuding between parties under the Gold Dome, as well as the House grousing that they had no idea who if anyone had the actual authority to negotiate on behalf of a dysfunctional Senate.

This year, tax code changes will be requested and passed, but the effort is likely to be much more narrow in focus. Lieutenant Governor Casey Cagle has said he will oppose any effort to replace the sales tax on groceries, though few were predicting that the General Assembly wanted to again tilt that windmill during an election year.

Much more likely is the elimination of sales tax on energy for large manufacturers in Georgia. “Competitiveness” will likely be the theme for the session, as legislators who campaigned on “jobs” in 2010 had difficulty pointing to any signature legislation which could be called a job creator. Expect the removal of the sales tax on energy to be showcased as part of this jobs focus, as the energy tax is often cited as a competitive disadvantage when Georgia tries to recruit large manufacturers.

Per Gwinnett County Representative Brett Harrell, “That tax, second only to payroll, is the largest expense to many of our manufacturing firms and puts Georgia at a competitive disadvantage with neighboring states.” We can expect to see the neighboring states argument regularly as justification for changes to make changes for Georgia to attract industry. Georgia’s leaders firmly believe the tri-state water wars are much about choking off Atlanta’s growth in order to divert it to Alabama and to a lesser extent Florida than it is about hydration. Similarly, the current battle between Savannah and Charleston’s competing ports over expansion dollars is all about economic advantage.

While Georgia’s revenue picture has been improving, increases in Medicaid expenses have eaten up a lot of the revenue growth. As such, most tax cuts will have to be replaced by (please don’t call them tax increases) new revenues or fees. There are two main sources that can be expected to see taxes extended to cover: used cars and internet purchases.

The sale of used cars between individuals, known as “casual sales”, has long been a target of Georgia’s automobile dealers. These dealers see the private sales of vehicles as direct competition to their businesses, where they are placed at a price disadvantage of the amount of tax over private sales. Dealers must charge sales tax on used car sales, whereas private non-licensed sellers do not. Despite the fact that Georgia tried this once before, the need for new revenues combined with the wishes of the politically powerful automobile dealers will give this one a better than average chance of passing.

Georgia businesses also will be supporting extension of sales tax collection to internet sales. While Georgia taxpayers are currently required to self-remit taxes for goods purchased over the internet, there is no collection mechanism whereby online retailers collect taxes online and remit proceeds to the state.

The argument is much like that of the auto dealers, as rising sales tax rates increase the competitive disadvantage between Georgia based businesses and those who sell over the internet from out of state. Businesses who invest locally, hire Georgians, and pay property and income taxes are required to add as much as 8% to their sales prices, whereas those who do not have a physical presence in Georgia nor provide local jobs get that amount as a price advantage. As online shopping grows, this loss of sales tax revenue is hitting both state and local governments hard.

The removal of energy taxes on manufacturers is a virtual certainty. The extension of taxes to causal auto sales is likely. Taxes of internet sales will be a much longer argument, and will require some action at the federal level to be fully implemented. Prior to that, it will also require Georgians to understand and accept that internet sales reward those who create jobs far away at the expense of those who invest and create employment locally. Making that argument worth 8% to Georgians in a tough economy is an even tougher battle.

22 comments

    • Charlie says:

      While the FairTax wouldn’t most likely be feasible if a State were to try it unilaterally, anyone looking at the FairTax as a national model needs to take the idea of taxing internet sales to heart. There is no way that a FairTax is going to omit internet sales from any version of its implementation. It just further magifies the problem if they are not.

    • 22bons says:

      At the national level both the flat tax and fair tax are a shell game politicians use to divert attention from the real problem — entitlement spending and growth of the federal budget. Cut spending and then we can discuss how to lower and/or reform taxes.

      At the state level it’s already flat as grift says. I have no philosophical problem with a sales tax approach at the state level, but there are many practical problems and I have little faith the General Assembly can or would fairly address them.

  1. elfiii says:

    The sales tax on casual automobile sales will cost many pols their jobs if it is passed. The workin’ man ain’t gonna’ have no spare $500 for sales tax when he goes to get his tag.

  2. 22bons says:

    Property tax administration is the tax issue the General Assembly should be looking at. I have personal experience in more than a dozen counties and almost all of them violate the law and the rules established by the Dept. of Revenue (in the Real Property Appraisal Procedure Manual) as a matter of course. County assessors (and often the Board of Equalization) don’t seem to know or care what the rules say and no one can really make them care. Very occassionally someone will sue (or threaten to) and then it’s right back to business as usual. The incentives are all wrong.

    My opinion is that if 50 years of reform efforts in states across the nation can’t solve the ongoing problem of unfair valuations, perhaps we ought to just scrap the system altogether. We should certainly change the incentives involved and put in place some real penalties for the assessors and the counties involved.

    • saltycracker says:

      Taxing that has little to do with a monetized transaction between a willing seller & buyer is fuzzy math. We are entrenched in valuing one property on what another brought under circumstances we don’t have a clue about. The taxers spend based on that value increasing to infinity.

      Over time rising property taxes require the owner to improve their income or the property must be sold or confiscated. In 2011, in two states, all my property taxes went up but the few neighbors that sold, more couldn’t, got less.

      Local governments say they can’t function at the basics without holding high assessments or raising millages, the latter being the more threatening for them. They need to go back to the drawing board and start living within their means and provide the services with a lot less bodies working until age 62+ with no special out programs.

  3. gcp says:

    “While the FairTax wouldn’t most likely be feasible if a State were to try it unilaterally” Seven states have no state income tax. Georgia needs to move in that direction but of course those that have undeclared income just can’t stand the thought they would actually have to pay taxes if we went to a state sales tax only.

  4. Dave Bearse says:

    Anyone know where Brett Harrell was on SB31?

    Residential ratepayers are already in the process of subsidizing industrial users of electiricity to the tune of a few hundred million in upfront charges for Plant Vogtle expansion.

    Industry isn’t paying for the capacity. Now they won’t be paying taxes. Why don’t we just give everyone that calls themself a job creater free electricity?

    Now that that’s off my chest, I support eliminating the energy sales on manufacturing energy contingent on residential ratepayers being made whole with respect to travesty of SB31—i.e. rates going forward to properly apportion the expense of the new future capacity according to use based on use, and reflecting the residential users payments to date.

    Since it’s not gonna happen, thanks for the soapbox.

  5. Dave Bearse says:

    I would support a sales tax on personal sales of used cars there were a significant exemption, with the exemption adjusted automatically for inflation. Exempt maybe the first $5,000 of a personal sale from taxation.

    I don’t remember how it ended up last time the car sales taxes were on the table, but my support above is also contingent on there being no cap or maximum taxable value of new cars if that was enacted, or if that is in the reform mix—personal or dealer.

  6. Doug Grammer says:

    I like a sales tax over a flat tax. Sales taxes should hit everyone, and at the same percentage.

    • Dave Bearse says:

      It’s interesting that you’re suggesting businesses no longer be exempt from sales tax on materaisls used in production. Or are corporations not people.

      • Todd Rehm says:

        I think that the general sentiment with regards to sales tax on production inputs is that it’s better and more efficient to levy sales tax on the finished product rather than factors of production. Otherwise, you end up with embedded sales tax that is later taxed once again downstream.

        • Calypso says:

          I understand that thought, as it relates to energy used in production and other materials. It becomes similar to the European VAT at that point.

          I have a question, though, regarding the proposed sales tax on casual auto sales. The car was taxed once by the state when it was sold as new, why should the state get another tax on it when it sells again as used?

  7. elfiii says:

    @ Calypso

    “The car was taxed once by the state when it was sold as new, why should the state get another tax on it when it sells again as used?”

    A compelling question. The answer is because the state thinks it needs mo’ money any way it can get it.

    • Calypso says:

      Yeah, I guess it’s the ‘no reason, just policy’ kind of thing. They make the laws and can get away with it.

      • saltycracker says:

        I have less of an issue with the house taking a rake of the action than them riding down my road and taking a cut just because I’m holding something they want to value….To provide services, get the money from consumption taxes -all purchases, including real estate –

        and if that doesn’t get it for the county, just add a charge of say, $500 a year per person resident fee and a [email protected] out of county employee fee, no property tax……everyone pays the same..designated head of household responsible…..So a household of 4 = $2k. Just a fun thought to provoke….

      • Self_Made says:

        It’s actually a result of years of auto dealers lobbying the General Assembly. They claim that the fact that their transactions are taxed and that casual (person to person) sales of vehicles are not puts them at a disadvantage. Those poor guys. I know of at least one who had to sell his plane.

        I wonder if taxes were paid on THAT transaction.

  8. seekingtounderstand says:

    Why can’t they just stick to stealth taxes……………………..denial all the way!

  9. seekingtounderstand says:

    My County Commissioner has land holdings worth millions of dollars to which he as added water, sewage and a new hospital to be built near buy while serving us………pays near nothing in property taxes on millions of dollars of property due to Georgias loopholes……………….
    Perhaps if they could stop the loop holes that stick it to us home owners while allowing loopholes for the insiders………………..this would help Georgia balance a budget that is going to be in another recession in about 18 months to two years or more deflation.
    This would be a great thing to do rather than take more from us poor folks with taxes on used cars or internet or anything else they can think of … raising taxes on anything is not going to sit well, are you listening Butch Miller…….Honda Dealer?

    • saltycracker says:

      They probably aren’t loopholes but specific laws intended to abate property taxes – picking winners and loosers is what tax legislation is all about…..

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