The AJC’s political team is scrutinizing the unintended consequences of sweeping tax breaks adopted by lawmakers last year. For this story, AJC political reporter Greg Bluestein pored through thousands of records and interviewed more than a dozen people. The newspaper earlier documented how an effort to replace the “birthday tax” wound up creating a double tax on car leases that lawmakers rushed to fix March 5.
A sales tax break designed to help agricultural businesses was written with sweeping language aimed at a range of Georgia farmers. But faced with a growing horde of applicants, state officials are racing to clarify a vast gray area determining who should qualify for the lucrative benefits.
An Atlanta Journal-Constitution analysis shows more than 20,000 businesses have rushed to apply for the tax break since it passed last year, and regulators have few resources to scrutinize the wave of applications. The program, which took effect in January, broadens sales tax exemptions for equipment and supplies bought by farmers in Georgia.
Known as the Georgia Agricultural Tax exemption program, it was designed to allow farmers and companies that produce $2,500 in agricultural services or products a year to receive sales tax breaks on equipment and production purchases. Construction firms, mineral companies, horse ranches and even dog kennels have applied for the breaks, along with hundreds of out-of-state businesses, with addresses as far afield as Texas and Colorado.
The tide of applicants, some with only a tenuous involvement in raising or producing food, has prompted state officials to urge the agricultural community to police itself or risk losing political support. Gov. Nathan Deal recently warned members of the Georgia Farm Bureau, the state’s dominant agricultural group, that he’s already heard anecdotal evidence of fraud.
“They need to be the ones to monitor this,” Deal told the AJC. “We don’t have enough inspectors with the Department of Revenue to be able to effectively monitor it. The (tax break) was done in good faith with the state and we ask the agricultural community to not abuse it.”
The break was adopted last year as part of a bigger package of tax cuts championed by Deal and other GOP leaders. Lawmakers have already wrestled with unintended consequences of another piece of the overhaul: An effort to replace the “birthday tax” on car registrations wound up creating a double tax on car leases that lawmakers scrambled to fix last week.
To get the agricultural tax break, applicants must submit an annual claim with the Department of Agriculture and sign an affidavit supporting their request. Yet the measure didn’t include additional funding for revenue inspectors to scrutinize the claims.
And there was no money set aside last year for the startup costs of vetting the 45,000 notices that have already come through, though Deal’s budget proposal this year includes $350,000 for administering the program. Permit fees ranging from $20 to $25 are expected to eventually defray the costs.
The majority of the applicants for the tax breaks are traditional farmers, but hundreds of other ventures are also seeking the exemptions, according to an AJC analysis. For instance, there are 67 applications from construction companies that build fences, lay irrigation piping and clear fields. Often, they list cattle ranching or another agricultural purpose for their request.
One of those applicants is Jerry Dailey, the president of Southeast Construction, a company based in Millen, Ga. with 11 employees. The company said in applications it helped produce a range of crops, from corn to wheat, by installing equipment such as irrigation piping.
“We don’t work for nothing but farmers,” he said. “We’re out here struggling like everybody else is, and we’re not getting farm subsidies from the federal government. Never have and never will. And this little tax break sure helps all of us.”
The law allows any out-of-state person who produces an agricultural product in Georgia to also apply for the breaks. It’s attracted more than 350 out-of-state applicants, including an aviation company in Texas that said it does regular flights in Georgia treating pine trees.
Mineral companies and rural veterinary hospitals have claimed the tax breaks. So have at least a dozen horse ranches and dog kennels by using a caveat aimed at cattle ranchers that applies the tax break when animal production is involved.
“It’s been tremendous for our business,” said Carol Medlock, who runs the Medlock Bullies kennel in Glennville, Ga. “It’s saved us a bunch so far.”
State records show that only one company’s appeal has been rejected, although the agriculture department said hundreds of others didn’t make it through the initial process.
“In filling out the applications, just as you do for personal taxes, we are trusting that applicants are being truthful,” said Mary Kathryn Yearta, a spokeswoman for the Department of Agriculture. “If it is suspected they are not, they will be audited by the Department of Revenue.”
In the meantime, state regulators are still trying to determine who can qualify for the tax breaks and what purchases can be exempted. One example, for instance, is whether oil and lubricant for tractors is exempt from taxes if it’s being used by farmers. The Department of Revenue is working out dozens of similar questions.
“We have this new system, but it’s still not white and black,” said Bryan Tolar, who is president of the Georgia Agribusiness Council. “There’s still confusion among the producers, and word of mouth is a whole lot more entertaining than the truth.”
For now, he said, he’s imploring agricultural businesses to be wary over what they try to claim.
“We need to err on the side of caution,” he said.
Some leading lawmakers are open to making changes to the tax breaks to better define who is eligible. State Rep. Tom McCall, who chairs the House’s agriculture committee, said he’d also consider raising the tax threshold so that only businesses selling $10,000 of agricultural products a year can apply. The limit is now at $2,500.
“It’s been more popular than we’ve expected,” said McCall, R-Elberton, who said he’s even received calls from rock quarries wondering if the gravel they’re selling should be exempt. “The governor is worried, and so am I, that folks are getting on the fringes of what is exempt. But this is still one of the best things we’ve done. It’s a great program.”
Critics of the proposal said problems were inevitable. State Rep. Scott Holcomb, one of a handful of lawmakers to vote against the tax break package, said Republican leaders were so eager to embrace the changes that the impact of the tax breaks weren’t carefully vetted.
“I didn’t agree with one of the main arguments that was made, which was tax cuts in and of themselves lead to economic growth. And the bill was put on our desk very quickly and, candidly, I didn’t have enough time to dig through it,” said Holcomb, D-Atlanta. “I think I was right because now concerns are being raised.”
Some of the perhaps surprising beneficiaries of the perks hope lawmakers leave the breaks untouched. Kathy Simpson is a teacher who spends some nights and weekends running Honey Creek Youth Ranch, which offers therapeutic riding for children and adults with special needs. Her nonprofit struggles to stay afloat even with the tax breaks.
“Every little bit helps,” said Simpson, whose horse ranch is in Henry County. “It’s hard to stay in business even with that little bit of help. Most of us with land and animals, it’s a constant battle with feed and hay and equipment.”
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