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.