If the tax overhaul plan now before the Legislature falls apart, some lawmakers have quietly developed a different plan: tax breaks for leading companies and industries that would cost the state tens of millions of dollars.
They have filed roughly two dozen special-interest tax-break proposals this session that would benefit the state’s railroads, its carpet industry and dozens of other manufacturers. They also propose to extend breaks already in place for Delta Air Lines and Gulfstream Aerospace, the jet builder in Savannah.
“I’ve lost track of how many [tax break bills] have been filed this year,” said House Speaker David Ralston, R-Blue Ridge.
Several legislators defend the proposals, saying they would help Georgia retain some of its leading employers and promote job creation. Some of the proposals would:
● Provide new tax refunds for companies creating tourism attractions.
● Make permanent the sales tax exemption on aircraft parts used to maintain and repair planes not registered in Georgia. This break specifically benefits Gulfstream and other companies.
● Exempt sales taxes for diesel fuel used by locomotives.
● Bring back a “sales tax holiday” for back-to-school shoppers.
● Renew a partial sales tax exemption on jet fuel for Delta.
Rep. Virgil Fludd, D-Tyrone, a member of the House Ways & Means Committee, said Delta probably doesn’t need its tax break anymore.
“When Delta was struggling, they needed the state to help minimize their expenses until they could get back on their feet,” Fludd said. “From what I’ve seen, they are not only on their feet, they are on roller skates.
“I don’t think it’s appropriate to give them tax breaks now. If we are going to give tax breaks to Delta, what are we doing for other major employers, like UPS, like Home Depot?”
Lawmakers decided last year to create a special council of economists and business people charged with taking apart the state’s piecemeal tax system, which was built on the economic assumptions of the 1950s, and creating a new one.
Two months ago, the tax-reform council proposed sweeping changes, including recommendations that some sales tax exemptions be eliminated, that some be phased out and that others, like those that benefit Delta and Gulfstream, remain in force. Bills that contain the council’s tax overhaul have been filed but legislative leaders have not yet brought the bills forward for a vote.
House Economic Development and Tourism Chairman Ron Stephens, R-Savannah, called the council’s plan “deader than a doornail.” Opposition to reinstating the sales taxes on groceries, among other aspects of the plan, is strong.
“If this thing fails, we’ve got to do something,” he said, to make sure companies such as Gulfstream and Delta continue getting the tax breaks they now receive from the state. “We have to remain competitive with other states.”
The council’s plan would cut income tax rates but charge the state’s 4 percent sales tax on more goods and services. Council members also said inputs — for instance the energy used in manufacturing — shouldn’t be taxed, and that special exemptions should be periodically reexamined to make sure they still make sense for the state.
In the past, businesses or industries wanting a tax break hired a lobbyist who made a case to lawmakers that the break would create or retain jobs. In more recent years, Republican leaders have put “sunset” provisions on most if not all tax breaks. So the tax break would have a time limit, and when that time limit was up, lawmakers could decide whether to renew it.
Some of the new individual measures would sunset; others would not.
It’s difficult to assess the total impact of the tax breaks currently being proposed because state officials have not yet completed all the “fiscal notes” that detail how much money the state will lose if they are approved.
The Delta exemption on jet fuel was first passed in 2005, a year after the airline suffered a $5 billion annual loss. The company’s stock fell below $1 a share in September 2005, and Delta filed for bankruptcy protection.
The tax break has been extended since then, but it is scheduled to expire July 1.
“I think it’s not only important to Delta, but the whole state. To me, Delta is vital to this state,” said House Transportation Committee Chairman Jay Roberts, R-Ocilla, who filed the bill to extend Delta’s exemption.
Roberts said other states, such as Texas, give tax breaks as well on jet fuel, and that Georgia needs to be competitive to keep its companies in the state.
Delta finished 2010 with its first annual profit — $593 million — in three years, but executives warned that rising fuel costs are pressuring them to raise fares.
Delta, company political action committees and lobbyists reported spending about $50,000 last year on campaign contributions, airfare and upgrades for state candidates and the major parties. Roberts was among those who received upgrades and a Sky Club membership, which Delta valued at a combined $2,000. Other House and Senate leaders received the same.
Delta spokesman Trebor Ban-stetter said even with the tax break last year, Delta paid the state $27 million in fuel taxes.
“Delta appreciates the ongoing efforts of its home state of Georgia to provide a measure of financial relief from rising jet fuel costs, which will help us continue to operate the world’s largest hub in Georgia,” Banstetter said.
Roberts also sponsored a bill to permanently exempt the sale of diesel fuel for locomotives from sales taxes. The tax break would save railroads — and cost state and local governments — about $12.8 million a year, according to the Department of Audits and Accounts estimate.
Roberts said railroads could make the argument that they shouldn’t pay sales taxes on fuel because they don’t use roads the money helps to upkeep.
Tax council officials said such new tax-break proposals should be filed one session and studied over the interim before being considered for passage the next year.
The most active tax-break filer this session has been Stephens, who has proposed more than a dozen. They range from big tax breaks for the film industry and investors who put money into startup companies to renewing some of the recently expired tax breaks that helped charitable organizations.
One that hits close to home for Stephens is a bill to help companies that repair and maintain aircraft.
Lee Hughes, lobbyist for Gulfstream, said the company has more than 6,000 employees on Georgia’s coast, mostly in Savannah. The company just announced a major expansion in Savannah last fall.
The tax break, which state officials estimated could be worth up to $12.8 million next year, has been in effect for a few years but is set to expire. Stephens’ bill would make the exemption permanent.
Hughes said it would benefit at least three other businesses in Georgia besides Gulfstream. He said 21 other states — including next-door-neighbor Florida — offer a partial or total exemption.
“It is not a tax break for Gulfstream. It [the tax] is either passed on to customers or it is not passed on to customers,” Hughes said.
Stephens said, “It’s incredible to think we are going to lose this competitive advantage. They can fly to Texas and not pay it [the tax] on a million-dollar project to repair and refurbish a plane.”
General Dynamics, the parent company of Gulfstream, reported in January it had pretax earnings of $2.63 billion in 2010. The company’s aerospace segment accounted for $860 million in earnings, up 21 percent over 2009.
Although he backs some of the exemptions, Kelly McCutchen, president of the conservative Georgia Public Policy Foundation, said lawmakers should think hard before adding tax breaks and take a more comprehensive approach to rewriting the tax code.
“We’ve got to be very careful because the minute you start carving out these exemptions, you are back to where you started,” McCutchen said.
Sarah Beth Gehl, a tax policy expert for the Georgia Budget and Policy Institute, said the state needs to thoroughly evaluate the tax breaks, weighing the benefit versus the cost.
Gehl said with the state continuing to cut spending in many areas, the impact on the state budget should also be evaluated.
“These are the choices legislators need to make,” she said. “Do we do the jet fuel exemptions or do we do school nurses? This is the year we need to bring the exemptions into the budget discussion and decide whether we can afford them anymore.”
But Stephens argues the state can’t afford not to renew tax breaks for industries that supply jobs, especially with the state’s high unemployment rate. While the council’s comprehensive tax break bill could still pass in some form, Stephens said lawmakers can’t afford to take a chance that nothing gets done this year.
“We wanted to make sure there are backup plans,” Stephens said. “I wanted to make sure we protected those tax credits that are important to the economy.”
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