Pro & Con: Should the General Assembly overhaul sales tax collection?

YES: Governments lose millions and system can’t catch tax cheats.

By DuBose Porter and Virgil Fludd


For two years, while the Republican-led Legislature slashed through education funding and enacted the largest tax increase in Georgia history ($428 million) by eliminating the Homeowners Tax Relief Grant, Democrats have been shouting in the wilderness. In cities and counties across the state, shoppers are paying sales taxes to stores large and small.

But the four to eight pennies of sales tax are not being sent to the Department of Revenue as required by law. Last year, we introduced legislation to allow private collection of those who are cheating state and local governments. Last year, Republicans balked at fixing point of sales tax collection.

So, over the summer, we have been hammering the Department of Revenue on its inaction. Suddenly, last week, Republicans found religion and decided to act. The trouble is, they only go halfway to catching the tax cheats. Our bill, House Bill 1137, goes the whole way to stop the cheating.

The problem is clear and the solution is simple. When starting a retail business in Georgia, a new owner has two obligations. First, you must apply for a business license where the business will operate. Next, you must file for a sales tax certificate with the Department of Revenue. To their credit, Ways and Means Chairman Larry O’Neal (R-Bonaire) and Vice Chairman David Knight (R-Griffin) have proposed that when businesses get a license, local governments must send that information to the department to see if they also have a sales tax certificate. Nice first step, but that does not solve the problem.

Due to Georgia’s convoluted, outdated and inefficient tax processes, there are some companies that file for a sales tax certificate that never bother to file for a business license. This causes a companion issue: The shop will set up service and comply with state law, but they refuse to register with the city or county, so no one knows if they have a sales tax certificate. Our bill solves both problems — sending information to the department and getting information to local governments.

Why does this matter? Because Georgia has two levels of sales tax: four cents that go to the state and two to four cents that go to pay for schools, police and infrastructure on the local level. How many pennies you pay depends on where you say you’re located. For example, if you fail to register in Atlanta, the city and school system loses out on nearly 4 percent of the taxes paid by shoppers visiting our city. Businesses cheat the system by relying on the Department of Revenue to keep their information from getting to the local government — and the already-paid taxes never make it to state or local coffers.

HB 1137 would not violate privacy laws. All the cities and counties want is the information they’ve paid $40 million for the Department of Revenue to collect: whether a business has a sales tax certificate within their jurisdiction. That’s it. No tax records. No confidential business information. Nothing the sunshine laws would keep secret.

However, the hue and cry about providing such simple records begs the question: What’s wrong with sharing? HB 1137 is fair to Georgia citizens and to those businesses that follow the law. Alabama collected $1 billion with a similar point of sales system. It could be even larger in Georgia by simply partnering between state and local governments — letting local governments do the work of matching records to receipts.

Taking the extra step of sharing records is a simple proposition that cities and counties are asking for. In a time of severe cuts, it’s difficult to understand why Republicans would leave tax cheats with such an obvious escape.

State Reps. DuBose Porter (D-Dublin) (left) and Virgil Fludd (D-Fayetteville). Reps. Calvin Smyre (D-Columbus) and Stacey Abrams (D-Atlanta) contributed.

NO: Privatizing collection will burden businesses, violate privacy rights.

By Bart L. Graham

The privatization and collection of local sales taxes continues to be a subject of proposed tax policy in Georgia. I believe it is important to provide information about the misconception that privatization of local sales tax collection could prove to be a quick budget fix for local governments. It won’t. But it will definitely be unnecessarily burdensome and costly for all those Georgia businesses who consistently comply with the law.

The assertion is made that “a whopping $1 billion in sales taxes annually” is going uncollected. The premise behind the assertion is that it is due to “inefficiencies in collection at the point of sales.” There is no documented support for this number or where it came from. I suspect it came from the company lobbying to do for-profit collections and audits.

In general, states across the country have decided that it doesn’t make sense to require businesses to file a separate return for each county in which they do business. Less than five states allow collection and audit of sales tax at the local level.

Were this to be true in Georgia, consider that each county would have the authority to perform its own tax audits, make its own legal interpretations and entrust confidential information to private collectors and numerous local government officials, all of whom would otherwise have no legitimate tax compliance reason to know.

Consider also that other legal complications would ensue due to ignored legal precedent and conflicting legal interpretation.

The seemingly obvious result would be more tax litigation in Georgia’s court system as local Georgia companies would be left to litigate the same issues in every jurisdiction in which they operate.

Having two conflicting opinions on the same sales tax issue will leave Georgia taxpayers lost in a legal wasteland asking the state to intervene. This is not merely speculation.

There have been dozens of lawsuits in Alabama over the past decade in which local jurisdictions and their collectors have tried to apply different interpretations of both the sales tax law and the Alabama Taxpayer Bill of Rights.

Most problematic is that those interested in this proposal want to outsource collection and audits to private, for-profit companies. If the department was funded this way rather than through legislative appropriation we would never waive another penalty upon reasonable basis and we would have collectors on every corner interfering with legitimate business operations every day while trying to find the illegitimate ones — all because the department sought to make more money doing it.

In Georgia, only appropriated funds can be used for tax administration and collection under the state Constitution. It seems to be a substantive conflict with that requirement if for-profit companies are allowed to collect and audit.

Every year, the department is contacted by dozens or even hundreds of people who advocate for leniency and consideration of their local companies who have tax delinquency issues. We have documented standards so that all taxpayers are treated equitably.

We, in turn, are part of the executive branch managed by the governor. We are subject to oversight by the Legislature and are routinely audited by the state auditor, who reports directly to the Legislature.

The point is, within the current system there is strong oversight of the department to ensure taxpayers are treated fairly and that the department operates within its statutory framework.

Under the proposed system, the only sense of equity would be left to those with the closest ties to the owners and management of the private for-profit collection companies. It is hardly the way I would want to be treated.

Bart L. Graham is commissioner of the Department of Revenue.