Georgia can’t say if farmers abuse tax exemptions

The AJC continues to investigate the impact of the agricultural tax exemption. Previous articles delved into the tax break’s effect on rural communities and the suitability of allowing out-of-staters to use the exemption. Log onto to learn more about the tax break’s implications.

The farm boys came to pay the bill for their daddy’s funeral. They whipped out a sales tax exemption card hoping to save 7 percent on the embalming, coffin and burial.

The card, though, is supposed to be used solely for farm-related products. Jason Holt didn’t accept it.

“I said to them that, even though we are planting something here, it is not agricultural,” said Holt, a funeral home director in Fitzgerald, 185 miles south of Atlanta. “It was said kind of in jest. But it makes you wonder where else that card had been used.”

People ranging from Holt, also a city council member, to Gov. Nathan Deal can recite anecdotes of reputed abuse of the GATE card program intended to help farmers, retailers and communities across Georgia.

Agriculture Commissioner Gary Black, whose agency decides who gets a card, told the Atlanta Journal-Constitution that reports of fraud were “rampant” during its first eight months.

But it’s unclear how much abuse has actually occurred. There are few controls to determine if the program is working the way it was intended. Neither the state departments of agriculture or revenue have audited the program in its 20-month existence.

More than 32,000 Georgia Agricultural Tax Exemption certificates have been issued, yet no card holder has been audited and no transaction has been investigated. The “honor system” — farmers and retailers are supposed to self-police the program — prevails.

Anybody involved in agricultural production can readily acquire a GATE card. Only 28 applicants have been denied a card. And the wide range of items considered exempt — everything from traditional farm supplies like feed and seed to everyday stuff like propane, lumber and ATVs — furthers the opportunity for abuse.

“There’s no way of knowing (if) someone is breaking the law or not,” said Michael McPherson, an analyst with the Georgia Municipal Association, which opposes the exemption’s impact on local tax coffers.

Farm industry supporters and most Georgia legislators say the program fuels the economy, especially in rural Georgia.

The revenue department will spend $174,000, starting today, to hire two GATE card auditors. Critics, though, question how effectively they can monitor thousands of card holders.

“You’re going to have unsavory folks who don’t follow the rules,” said commissioner Black. “We’ve been screaming from the rooftops from day one if you abuse this, you will lose this.”

Tractors to bees

In 2012, the General Assembly approved sweeping tax legislation intended to attract investment, create jobs and streamline the state’s tax code. Sales taxes on agricultural goods, jet fuel, construction materials and energy used by factories were slashed.

The state auditor’s office predicted the agricultural tax break - an exemption from paying 4 percent to the state and up to 3 percent to counties - would cost taxpayers a total of $72 million during the program’s first three years. Critics say the actual costs are substantially higher.

The wallet-size cards are easy to get. “Qualified agricultural producers” who earn at least $2,500 a year farming or in an agriculturally related business are eligible. The card may be used for dozens of items: tractors, chainsaws, lawnmowers (if used on the farm or around the chicken coop), pesticides, hoses, ice, fencing, machine parts, delivery trucks and a variety of animals sold for breeding.

Georgia farmers, like counterparts in neighboring states, have long been exempt from paying the sales tax on certain ag products. Prior to 2012, all they had to do was fill out a certificate, declare that they were indeed farmers and that the items purchased were solely for the farm. The retailer kept a copy of the certificate on file in case a state tax auditor came around. They rarely did.

The new system greatly expanded the number of tax-free items.

Bryan Tolar, president of the Georgia Agribusiness Council, said requiring customers to pre-apply for the GATE cards lessens opportunities for abuse because they’re already certified as agricultural producers.

“You have to know your customer and take what he’s saying at face value,” said Tolar, who said he frequently reminds ag producers not to abuse the system.

“Hope they tighten it up”

A guy from Alabama bought $100,000 in plywood for a “barn” which he used instead to build a house. A North Georgia man picked up custom-made granite countertops for his new farmhouse. A Hall County woman bought kibbles for her five cats.

All claimed, or tried to, the sales tax exemption, according to anecdotes told by Black and other state and local officials. Deal, in an interview, said he had concerns the program might not be “used for the purposes for which we intended.” House Majority Leader Larry O’Neal said “we’re certainly taking a hard look at the potential for fraud.”

“For the program’s first six, eight months (reports of abuse) were pretty rampant, but I don’t hear of those types of situations as frequently,” Black said. “I’m confident that in almost any government program you’re going to have abuse. But I’m equally confident of the integrity of the agricultural community in Georgia.”

The revenue department will fund two “dedicated auditors” who will review GATE card purchases, spokesman Nick Genesi said in an email. He declined requests to elaborate and wouldn’t make available revenue officials familiar with the GATE program.

Rep. Scott Holcomb, an Atlanta Democrat who voted against the tax package, questions how auditors will determine if farmers use the exempted products for their intended purposes. He also asks how two investigators can effectively audit more than 32,000 card holders, especially since customers don’t need to file receipts or provide sales tax data to the revenue department.

“And what happens if the transaction is done in cash? How will they be able to tie that back to the purchaser?” Holcomb asked. “There needs to be a better system of checks and balances to make sure the system is not being abused.”

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