Energy Tax Cut Hitting Local Tax Bases

October 2, 2012 13:00 pm

by Charlie · 5 comments

Today’s Courier Herald Column:

As the last session of Georgia’s General Assembly came to a close, state leaders trumpeted their accomplishment of targeted tax cuts aimed at attracting new industry and retaining existing jobs in the state.  The centerpiece of the legislation was the elimination of sales taxes on energy used by manufacturers.  The state absorbed the phase out of that tax through additional taxes extended to the casual sales of automobiles – the purchase and sale of used cars between individuals that is currently untaxed.

Much more quietly, local governments are now trying to decide how to plug holes in their budgets caused by this tax cut.  Manufacturing in Georgia is not evenly distributed across Georgia’s 159 counties, and the local portion of the sales tax scheduled to go away is more significant in some than others.

Gwinnett County is currently analyzing the situation and trying to decide the best course of action depending on the size of their anticipated loss.  The AJC quotes Commission Chairwoman Charlotte Nash as asking “Is it $2 million or $10 million?…We could probably absorb $500,000.  But $2 Million starts sounding like real money.”

Likewise, counties in Northwest Georgia’s carpet producing region are weighing the pros and cons of reinstituting the local portion of energy sales taxes, as was allowed for under Georgia’s new law.  Dalton Mayor David Pennington sees the elimination of the tax cut as crucial for his region to protect and maintain the base of remaining carpet and other manufacturing jobs in the area, but it will also cost Whitfield County roughly $800,000 of their roughly $40 million budget. 

Pennington frames the tradeoff as “it hurts the budget, but what hurts the budget more than anything is lack of jobs” according to the Chattanooga Times Free Press.

Neighboring Walker and Catoosa Counties are also weighing the issue.  They fear keeping the taxes will put them at a competitive disadvantage with counties such as Whitfield who are eliminating the taxes entirely, but they are also aware of the larger percentage of the budgets that the taxes currently make up for their local governments.  According to the same Times Free Press article, cities like LaFayette and Chickamauga stand to lose $150,000 each as the tax phases out.

Local governments continue to battle with declining or stagnant property tax digests coupled with flat retail sales and the related taxes they generate.  At the same time, the state continues to reduce the money available for local assistance through withholding local appropriations of fees collected by the state, but not distributed among counties and cities.  Other reforms, such as the recent criminal justice reform which made many felony crimes misdemeanors, transferred the burden of related expenses from the state to local governments.  The elimination of sales taxes on energy is but another example of how policy made at the state is creating direct impacts on the fiscal policies adopted at local levels.

While the energy tax reform does allow for local governments to replace the eliminated taxes with local excise taxes, the burden then falls to county and city officials to request new taxes, viewed by most as a tax increase rather than merely maintaining the status quo of their dwindling tax bases.

Local officials squared off versus state leadership over T-SPLOST, and there is now a large and growing chasm between local school boards and the state over the proposed constitutional amendment to allow state sponsored charter schools.  The increasing fiscal burdens at the local level while leaders trumpet tax cuts at the state level is not likely to continue to sit well with the locally elected officials who are cutting services instead of taxes to balance their budgets.

If looking ahead to what battles will be brewing for the 2013 session of the General Assembly, expect local governments to be a bit more vocal about their needs.  This is likely to include calling state leaders on the carpet a bit more frequently about their tax cuts that are really just transfers of tax burdens to the local level.

jpmsouth October 2, 2012 at 2:04 pm

Well gee whiz – the Republican leadership in the State House gave the legislators all of 22 hours to read the aforementioned 126 page HB 386 last session before taking the bill to the floor for a vote.
Interestingly, the Speaker’s District is one of the areas being negatively impacted…be nice if Speaker Ralston’s constituents asked him some questions such as why hide a major State tax overhaul bill from the people and his own rank & file House members, and not let a review be done instead of back rooming it? The leadership blows off facts by lieing [right word to term it] that nothing new was in the bill from the pulled bill the previous [2011] session. After all, its only taxes.
But then again, both the Democratic and Republican leaderships have both operated in the back rooms without citizen sunlight for eons in this State – why would/could an average citizen expect better?
Yes, I am angry and frustrated at our legislators.

polpol October 2, 2012 at 2:38 pm

This tax issue brings major concerns to the local tax table……Georgia Power does not know how to determine the impact this will have….the Department of Revenue doesn’t have a clue nor have they even drafted the forms necessary to apply for the exemption….and most importantly there is no authorization for anyone other than a local government to collect the tax or to pay them to collect it…..

Calypso October 2, 2012 at 2:57 pm

Reminiscent of unfunded federal mandates to states.

Charlie October 2, 2012 at 3:09 pm
David Staples October 2, 2012 at 3:46 pm

I understand the need to make our state more attractive to companies who are considering locating here, but would it not perhaps have been wiser to instead lower the corporate income tax, which would not affect the various localities like this? Would the manufacturers see a big difference between saving X% on their electrical usage vs saving $X on their corporate income returns? (There could certainly be flaws in that idea… I don’t think that I’ve seen any discussion on it quite yet, or if I have, it’s been a while.) What are the pros? Cons?

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