If Georgia drops income tax, will sales taxes rise?

State legislators who want to eliminate Georgia’s income tax haven’t said exactly how they plan to replace the state’s largest revenue source.

But a look at states that get by without a tax on individual income provides a clear answer: They rely far more than Georgia on sales taxes to pay their bills.

Florida residents pay a state sales tax rate 50% higher than people in Georgia. Tennessee residents pay the second-highest state sales tax rate in the nation. Other states without personal income taxes also lean heavily on sales taxes to pay for government services, an Atlanta Journal-Constitution analysis found.

The state’s personal income tax will be a hot topic when the General Assembly reconvenes in January for its annual legislative session. But the AJC’s analysis shows Georgia legislators have limited options as they look for ways to eliminate it. Sales taxes are, by far, the main alternative to the income tax in state after state.

Supporters of eliminating the income tax say Georgia wouldn’t necessarily need to raise the state’s 4% sales tax rate to generate more revenue. State Sen. Blake Tillery, R-Vidalia, said eliminating tax breaks for corporations can go a long way toward replacing the personal income tax.

“Why would we give out special credits just because you can afford a lobbyist, when we could instead reduce the tax rate for everybody?” said Tillery, who chairs a committee studying the issue and is running for lieutenant governor.

But even some observers who are sympathetic to Tillery’s goal say it won’t be easy. Kyle Wingfield, president of the conservative-leaning Georgia Public Policy Foundation, said eliminating tax breaks and lowering rates might be the economically smart thing to do, but it’s politically difficult.

“There are no solutions, only trade-offs,” Wingfield said. “It depends on which trade-off you want to make.”

Georgia collected about $16 billion in personal income taxes in fiscal year 2024 — 48% of tax revenue, according to a U.S. Census Bureau survey. It collected another $9 billion in general sales taxes (27% or tax revenue) and $3.6 billion in corporate income taxes (11%), according to the survey. Special sales taxes and other taxes and fees accounted for the rest.

Personal income and sales taxes are by far the largest sources of tax revenue in most states. But nine states forego personal income taxes, and they have featured prominently in Georgia’s debate about eliminating its income tax.

“We’re not reinventing the wheel,” Lt. Gov. Burt Jones, who has made eliminating the income tax a focus of his gubernatorial campaign, said last month. “It’s been done in … Tennessee, Florida and even Texas and (a) lot of other ones.”

However, those states did not eliminate broad personal income taxes as Georgia is attempting to do. They never had them.

Here’s a closer look at how such states raise revenue, which underscores the difficulty of eliminating Georgia’s income tax:

• Six of the nine states without income taxes collect more than half their tax revenue from sales taxes. Florida (64% of tax revenue) is the most reliant on sales taxes. Texas (62%) and Tennessee (58%) also depend on sales taxes.
• Some states with no personal income taxes also lean more heavily than Georgia on corporate income taxes, property taxes or special sales taxes on alcohol, tobacco and other products. For example, New Hampshire gets 34% of tax revenue from corporate income taxes, while Texas gets nearly a quarter of its revenue from special sales taxes.
• The economies of various states help them get along without an income tax. States like Alaska and Wyoming rely heavily on taxes on oil and other natural resources to pay their bills. Other states — such as Florida, Nevada and Tennessee — are heavily dependent on tourism and can reap big money through sales taxes paid by visitors.

But even those advantages don’t protect those states’ residents from paying higher sales tax rates, according to a tally by the Tax Foundation, which tracks state policies. Seven of the nine states without personal income taxes have higher sales tax rates than Georgia’s 4% tax rate, including Florida (6%) and Tennessee (7%). Those rates don’t include local sales taxes that help pay for schools and local government operations.

What’s more, those states assess sales taxes on a broader array of goods and services than Georgia, according to the Tax Foundation. Tennessee, for example, taxes grocery sales — although at a reduced rate.

Georgia does not tax food prepared for off-premises consumption. It also does not tax a variety of services — from health care to haircuts.

Danny Kanso, a fiscal analyst at the liberal-leaning Georgia Budget and Policy Institute, doubts legislators can eliminate the income tax without raising taxes on goods and services bought by ordinary people. He said many Georgians would end up paying more taxes, not less.

“The reality is, the trade-offs are extremely painful and are going to hit the poor and middle-class the hardest,” Kanso said.

Tillery disputes that. His committee has already said it will not recommend a sales tax on groceries, a state property tax or a gas tax increase. His first priority is eliminating tax breaks for businesses and special interests.

“The first step is, stop giving exemptions for corporate welfare at the expense of everyday Georgians,” Tillery said.

But there is reason to doubt legislators’ appetite for eliminating tax breaks — or even limiting them. Last year, they tried and failed to cap Georgia’s film tax credit. This year, they revived a postproduction credit that had expired.