Don't touch our tax break, businesses plead with reform council

The letter is one of a number of special-interest entreaties to the council charged with finding ways to update and streamline Georgia's tax code. The council is expected to make recommendations to state lawmakers next week. The letters exemplify some of the barriers the council faces as it searches for ways to broaden the state's tax base and make the code more simple and fair.

The sod exemption is one of dozens of special tax breaks for businesses, all of which deny money to state coffers and -- at least according to critics -- increase the tax burden on everyone else. Businesses counter that the breaks help them create jobs and feed state tax revenues in other ways.

No business wants to lose its tax break, and some want new sales tax breaks added to the 13-page list of current ones.

Those exemptions go to a surprising stew of businesses.

There's a tax break on sales of sugar fed to honeybees and on crab bait sold to commercial fisherman. Sales to private colleges are exempt. So are health-related sales to many nursing homes and hospitals, sales of $15 million or more in computer equipment to certain "high technology" companies, sales of stud bulls, pecan shakers, industrial materials and the pretzels airlines buy and then pass out for free.

Some exemptions are temporary, like the one on "materials used to construct an eligible corporate attraction that is dedicated to the history and products of a corporation which costs at least $50 million and has 60,000 square feet of space, including parking and landscaping."

They could have added "and has a red logo." The exemption expired after the new World of Coca Cola was built.

Others seem contradictory.

Georgia Power pays sales tax on the coal it buys to make power, but not on the natural gas it buys to do the same.

Its customers pay no sales tax on the power they use to keep chickens warm.

They do pay sales tax if the animal needing warming is a pig.

All of the special interest breaks cost the state money.

A 2006 study by Georgia State's Andrew Young School of Public Policy found that Georgia businesses save about $10 billion a year because of the tax breaks. That's compared to a total annual state budget of just under $20 billion.

Business lobbyists say the tax breaks help Georgia businesses compete with those in neighboring states.

Critics say that argument has been used too loosely.

"When industry says they're losing money because one state has a tax exemption and we don't, we need to have them back that up," said Alan Essig, director of the Georgia Budget and Policy Institute, which wants all tax breaks reviewed regularly from now on.

"So many times when we talk about a tax exemption for industry, there's no expectation of accountability," he said. "It's just ‘Take our word for it.' It's almost like you're insulting them to even ask."

The state's agricultural businesses are among the most common recipient of tax breaks. The breaks have become critical to their bottom lines, said a lobbyist for their state trade association.

Exemptions were "put into place over a period of many years, primarily because we found out that we were in competition with neighboring states that already had the tax breaks," said Bryan Tolar, of the Georgia Agribusiness Council.

The breaks "purely mirror those in neighboring states," he said. "I can't think of an exemption we have in Georgia that doesn't exist in at least one if not multiple neighboring states."

The sod industry, he said, is a good example of a tax break helping Georgia. About eight years ago, as the housing explosion fueled demand for sod here, developers and contractors began heading to Alabama because they could avoid sales tax there "by paying the farmer directly," Tolar said. The exemption here was written to allow the same.

Competition is also the rationale for a proposal from the state's biggest industries. They want a sales tax exemption on the energy they use.

Roy Bowen, of the Georgia Traditional Manufacturers Association, said the group has been pushing for the break for years and that Georgia's neighbors already have it.

He said the state is losing business investment because of that. In the past 18 months, Bowen said, Georgia's energy costs played a significant role in Mohawk Industries' decision to locate a new fiber plant in South Carolina and in Peach State Labs putting a new facility in Alabama.

Other industries have presented the tax council with other reasons to avoid paying new taxes. The pharmaceutical industry said its sales tax break helps the elderly and sick, for instance.

The reform council has also heard from proponents of tax hikes on cigarettes and timber and -- in a request from car dealers -- a new sales tax on person-to-person car sales.

Even critics of the state's tax code say some of business tax breaks are necessary.

"Some tax breaks serve good public policy purposes," said Sarah Beth Gehl, tax expert for the Georgia Budget and Policy Institute, adding that an exemption for the energy used in manufacturing is arguably one of them.

"But we need a good balance between competitiveness in the tax system and competitiveness in our quality-of-life services. The quality of our schools and roads and all those services that the state budget pays for also keep us competitive."

The problem is paying for the tax breaks: The manufacturing energy credit would cost the state $80 million according to Gehl and $130 million according to Bowen.

It may be good policy, she said, but something else will have to give.