NOTES FROM THE SENATE BY SENATOR JACK HILL

December 14, 2007

Holding our Own - November Revenue Collections
November continued the upward trend in Revenue Collections. Net Tax Collections for the month rose 10.3% or $131 million compared to November 2006, over half of which was an adjustment of 2007 (see explanation below). Individual Income Taxes were up 4.1% or $28 million and Sales and Use Tax reported a net increase of 19.1 % or $74 million. This is a little misleading because $66 million of these funds were misstated last year and makes growth this year look larger than actuality.

Year To Date Collections
Net Tax Collections for the Year To Date (YTD) show an increase of 5.4% or $357 million over the same YTD period last year. Individual Income Tax collections have increased 5.2% or $179 million. The biggest driver was withholding collections that yielded a 6.9% growth rate. Sales and Use Taxes are up 4.3% or $95 million (again the adjustment of $66 million impacts this figure). Corporate Income Taxes, the percent leader, were up 46.9% or $89 million compared to November 2006 YTD. Primarily driving this category is a decrease in corporate refunds by 66%.

Motor Fuel Taxes were up 2.3% or $10 million YTD. The prepaid portion reported an increase of 5.7% or $12 million; the excise tax reported a decrease of 1.1% or $2 million.

When motor fuel taxes (which can only be spent on roads and bridges) are not considered, revenues are up 5.7% for the year compared to last year. The 2008 budget is based on growth of 3.7% compared to last year. Adding 1% used in 2009 for k-12 growth, we see that our growth is only 1% ahead of needs.

How the Sales Taxes System Works
This fund source currently represents 35% of the revenues collected. The state currently charges a 4% sales and use tax on goods across the state, which was started in 1951 at a rate of 3%. Services are exempt from the tax. Barbers, doctors, lawyers, and other service providers, do not assess a sales tax for their services. Certain tax exemptions are granted for goods. The largest exemptions are purchases by governments and nonprofit organizations, food, and materials used in manufacturing (the final good produced will be taxed) as well as agricultural equipment.

Local governments also depend on sales tax revenue for financing their services. The Local Option Sales Tax (LOST) was implemented in 1975 and allows county governing authorities to assess a 1% sales tax (local governments that had food taxes prior to 1996 continue to do so, but otherwise can only tax items that the state taxes). It is currently utilized by 154 of the 159 counties in Georgia. Of these, 8 counties (Bulloch, Chattooga, Colquitt, Habersham, Houston, Mitchell, Rabun and Wilcox) currently have arrangements to use the proceeds entirely for educational purposes.

In 1996, school boards were given the authority to levy a 1% Educational Local Option Sales Tax (ELOST). As with the SPLOST, it must be approved by referendum and can only run 5 years before it must be reauthorized. ELOST’s can only be used for specific educational related capital outlay purposes. As of the beginning of 2007, ELOST’s are being used in 153 counties.

Other local sales taxes are possible (for example to fund MARTA) but to date, only a few counties have implemented them. In any case, all local sales taxes are collected at the point of sale and remitted to the state Department of Revenue. DOR then remits the amounts due to local governments.

In 2002, sales tax holidays were created on the purchases of school supplies, clothes and some electronics under a certain limit. The sales tax holidays were scheduled to coincide with the back-to-school shopping season. The holiday was later expanded to include energy efficient appliances (the maximum exemption is $1500).

The 4% sales taxes collected for state government has not grown at the same rate as the state’s economy.

USEFUL WEBSITES

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www.legis.state.ga.us