A homestead option sales tax, or HOST, allows counties to charge an additional penny in sales tax in order to pay down property taxes on primary residence. The law requires counties to use 80 percent of penny sales tax collections to replace county property taxes. Any remaining revenue is discretionary and can be used for capital projects such as roads or toward tax breaks for other properties (commercial, industrial, etc.). Voters must approve the tax change, and a HOST remains in place until another referendum is held to remove it.
Cobb County residents could see a drop in annual property taxes in exchange for a higher sales tax under a plan that commissioners are exploring.
A homestead option sales tax, or HOST, would replace a portion of county property taxes by increasing Cobb’s sales tax from 6 percent to 7 percent. DeKalb and Rockdale counties have a similar system in place, but Cherokee County voters soundly defeated an effort Tuesday to introduce such a tax.
The concept of a consumer-based tax has typically been embraced by conservatives, but it's unclear how the idea will go over in tax-weary Cobb, where skeptics say it could amount to an overall increase in taxes.
County Chairman Tim Lee introduced the HOST idea this summer during his re-election campaign, at a time when he was facing criticism for support of a 1 percent regional sales tax to fund transportation projects, or T-SPLOST. He said a HOST would lower taxes for the average household and is a better approach to pay for county services such as libraries, police and courts. He plans to spend the next year talking with residents about the proposal, with a vote possible in 2014.
“(This would) diversify the income stream, provide some tax relief and move toward a more fair tax for residents,” Lee said. “There’s a fairer way to spread the burden out to a bigger body of people, and I think that’s worth a discussion.”
A HOST requires counties to use 80 percent of collections from the new increase in the sales tax to replace one part of the county’s taxes on primary homes — what’s left over can be used for capital projects such as roads or toward tax breaks for other properties. Under a HOST, homeowners would still pay the same property tax rate, which would cover school, fire, debt service and state taxes. But they would see a credit on their tax bill for general operations — typically the largest part of the county’s portion of the tax — to reflect the reimbursement from the increased sales tax. If the additional sales tax did not cover the full cost of general operations, the homeowner’s credit would be adjusted proportionately.
Cobb doesn’t have projections yet on how much the average taxpayer would save with a HOST, but in Cherokee officials estimated that the average county homeowner would have saved $332 in annual property taxes on a $160,000 home while spending an extra $237 in sales tax. That would have produced a net annual savings of about $95. Cherokee leaders believed the measure failed because of confusing ballot language and a late start in trying to educate voters about a HOST.
Supporters say a HOST is a step toward a fairer tax system, with government services being funded by anyone who shops in Cobb rather than only homeowners. Critics say it would shift the tax burden from the rich, who can save the bulk of their income, to the poor, who spend most of it on basic needs. Others worry the tax would disproportionately affect some residents, such as those on a fixed income or renters.
Julie Sherling, 45, a lifelong Republican who lives in northeast Cobb, said she’s a renter and doesn’t like the idea.
“They aren’t paying my grocery tax,” she said. “I don’t want to pay for their property tax.”
Introducing a new tax — even if it replaces an old one — could be a hard sell in Cobb, where in July almost 69 percent of voters struck down the 1 percent regional sales tax. In 2011, a four-year extension of the county’s special purpose local option sales tax, or SPLOST, passed by only 79 votes.
Skeptics say a HOST would bring in more revenue for capital projects and therefore would be a tax increase. Cobb brings in about $125 million a year in penny sales tax collections — enough to replace all of the $80 million in HOST-eligible property taxes. Lee’s plan would allocate about $12 million of the remaining revenue toward capital projects and use the other $33 million to reduce taxes on other properties.
There’s also concern that future sales tax collections wouldn’t generate enough to completely replace eligible property taxes, in which case residents would pay both in order to maintain county services. In DeKalb, where a HOST was adopted in the late ’90s, the discount fluctuates depending on the amount of sales tax collected, how much is used for capital and the county’s property tax collections. Homeowners have seen anywhere from a 100 percent to a 46 percent reduction on eligible taxes.
Cobb leaders don’t expect a problem, since sales tax returns haven’t fallen below HOST-eligible property tax collections in recent years. But Lance Lamberton, president of the Cobb Taxpayers Association, said he doesn’t trust future commissioners to honor the commitment to pay down property taxes.
“I’m concerned about the trade-off,” he said. “Maybe in theory it sounds good, but is it really going to happen?”
State legislators must agree to place the proposal on the ballot before it goes before voters. State Rep. Ed Setzler, R-Acworth, said he is eager to hear more details about the plan. Setzler said the he likes the idea of switching to a consumption-based tax but wants to hear the details of the plan before committing his approval.
“To support this, I want to see some checks and balances to ensure long after our commissioners are no longer on the board, this doesn’t become a mechanism where taxpayers can be double taxed,” he said. “I want to make sure we think this thing through as a multidecade proposal, not just a proposal for the next five to 10 years.”
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