Local impact unclear on energy sales tax repeal

He and other city leaders in "the carpet capital of the world" argued that the tax was hurting the area’s dozens of carpet businesses, and in turn hurting state and  local governments.

“This had to be done to make our state more competitive," he said. “For us, repealing this tax was our No. 1 issue this year.”

Pennington got his wish last month when state lawmakers pushed through a tax reform plan that included a four-year phase-out of the energy tax. For Georgia’s manufacturers -- including such giants as Kia Motors, Gulfstream Aerospace and Dalton's Shaw Industries -- the tax exemption will mean millions of dollars in savings, which local leaders are hoping will lead to more investment in the state.

That's one side of the discussion. The other side is what Whitfield County will do without the money that the tax generates, and one top official says local taxpayers may face an increase in property taxes or sales taxes to cover the loss. (The Legislature didn't give the average Georgia taxpayer a sales tax break on energy: A typical customer of Georgia Power, for example, pays $112 a year in sales taxes, according to the company.)

Pending approval by Gov. Nathan Deal, the initial 25 percent of the manufactures' tax exemption will begin Jan. 1 until fully phased in, in 2016. The provision exempts any company manufacturing a product, from automobile makers and carpet manufacturers to steel companies and newspaper printers.

For example, Sweetwater Brewing Co. in Atlanta, pays about $18,500 each year in energy taxes, said company spokeswoman Francesca Zeifman. The company operates one brewery that produces more than 100,000 barrels each year.

The repeal had been a key part of Deal’s plans to improve Georgia’s business competitiveness. Georgia was one of only a handful of states that are still levying the energy sales tax, and the governor noted that the tax had been a barrier to recruiting new business to the state.

While the tax repeal could boost economic development, the state is expected to see a loss in tax revenue of $18 million in fiscal 2013 with the one-quarter phase-in, to an eventual loss of $94.3 million in fiscal 2015, according to a state-provided fiscal note. For local governments, which split the sales tax revenue with the state, the loss of money is more difficult to calculate. Rough estimates peg the loss at slightly more than $100 million. The Georgia Department of Revenue does not separate out the tax revenue data at that level of detail, said department spokesman Jud Seymour.

To help offset the loss, lawmakers included a provision in the tax plan enabling local governments to levy an excise tax to recover the money lost to the sales tax exemption. Unlike the existing sales tax, which is collected by the state, the local governments would have to collect their own excise taxes.

“We’ve heard counties and cities saying they’re glad [the energy tax] is going away and we can absorb the loss. Others are saying that they need the tax,” said Clint Mueller, legislative director for the Association County Commissioners of Georgia. “It’s a mixed bag.”

In Dalton, where most of the economy involves manufacturing, Mayor Pennington says he is not looking to levy a new excise tax.

“With county taxes, [local and education] SPLOSTs and the LOST, we were looking at about $10 million per year that the manufacturers were paying. In 2007, one manufacturer spent $2 million at the height of taxes paid on just energy at their Whitfield plants,” he said. “Another tax is not what we need.”

Whitfield County's budget for 2012 is $41.6 million, so a hit of several million dollars is substantial.

County Commission Chairman Mike Babb said the county is not sure yet how the tax repeal will affect the county.

In 2009, Whitfield had the fourth-largest number of private manufacturing jobs in the state at slightly fewer than 19,800, according to the latest data available by the U.S. Bureau of Economic Analysis. Georgia had more than 373,000 manufacturing jobs that year.

Enacting a new excise tax is not appealing to Babb, but with the county’s low millage rate and lack of a special purpose local sales tax, the lost revenue will have to be found elsewhere, he said, possibly through a property tax increase or local tax.

“Levying the excise tax kinda defeats the purpose. We want to entice new industry,” he said. “We haven’t made a decision, but it would be kind of going in the opposite direction. If we could get a local SPLOST passed for capital projects, we could do that instead of impacting the county budget.”

For Georgia’s manufacturers, the energy costs can be neck-and-neck with labor costs, said Roy Bowen, president of the Georgia Association of Manufacturers, making the energy tax that much more onerous.

“What we were having to do was offer up even greater incentives to offset the higher cost of energy because the manufacturers were looking at the totality of their costs,” Bowen said. “There were some major investments waiting on the sidelines that were waiting on the outcome of this bill.”

Bowen is hoping local governments don’t levy excise taxes, to make Georgia even more competitive.

For counties like Cobb, the decision is still being discussed. Enacting an excise tax would appear to be a wash for Cobb, said Jim Pehrson, Cobb’s finance director.

“Either way you’re still passing it on to consumers, whether it’s an excise tax or a sales tax,” he said.

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