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Doug Holt: Here's a look at state tax changes

Photo by Michael Buckelew

Photo by Michael Buckelew

During the second-to-last week of the session, the House began working through Senate bills in earnest. We spent a lot of time in committee, and voted on 25 pieces of legislation on the House floor.

HB 386, a package of tax code changes, was the most significant item we voted on. It proposes a number of cuts, as well as several increases. Among the tax cuts, the two largest are the phase out of the sales tax on energy used in manufacturing, and an elimination of the marriage penalty in the state income tax. The energy tax has seen increasing attention in the last couple of years, because we are one of the last states in the Southeast still collecting it, which has been a serious disincentive for manufacturers looking at locating in Georgia. It may have a role in the significant rate at which we have lost industrial jobs in the last decade. The bill would end that tax in a four-year phase out, with the ultimate benefit to business being over $160 million per year. The other key provision of the bill, the removal of the marriage penalty, would phase in more quickly, and would amount to a roughly $150 million per year benefit to households.

Several other less significant cuts are included in the package. Agribusiness would receive a number of sales and use tax exemptions on production inputs. Regionally significant economic development projects would become eligible for a sales and use tax exemption on construction materials. The next change would be the elimination of the annual ad-valorem tag tax on vehicles. Starting on March 1, 2013, any vehicle purchased (new or used) would no longer see the annual ad valorem notice. Owners of vehicles purchased from the beginning of this year until that date will have the ability to opt into the new system created by this bill if they want, or they can remain under the old ad valorem system. The final tax cut in the bill would be a two-year restoration of the popular sales and use tax holidays for energy efficient appliances and for school supplies.

Inevitably, the cuts offered in the bill must come at some price. Once fully phased in, the bill would deliver about a $450 million-tax cut per year, offset by roughly $330 million in increases -- so a net cut of around $120 million each year. Just as with the cuts, the increases come from a number of sources. First is the flip side of the ad-valorem coin. Starting March 1, 2013, all new and used vehicle purchases (not just commercial, but private as well) will see a 7 percent up front fee, though that will be considered a one-time title charge, rather than a sales tax.

A second change will be a lowered cap on the conservation easement credit, dropping it from $1 million to $500,000. The third increase is not an immediate source of revenue. Current law would phase out state income taxes on all retirement income by 2016. Instead, the present situation, in which the first $65,000 per individual ($130,000 per couple) is exempt from state income tax, would become permanent. Another place the bill would raise revenue is to require that sales tax be collected by Internet retailers who have any kind of physical presence in the state.

There is one other way the bill would increase revenue, affecting an industry of greater interest to our area. Movie-makers in this state currently have a sales and use tax exemption on purchases made in Georgia. The bill would eliminate this exemption. When the bill was first announced, I soon received several emails from folks who were concerned that the Legislature was about to destroy the movie business that has built up in our area. That will not be the case, because the sales tax exemption is one of two tax incentives currently in place for this business, and it is the much less important of the two. The sales tax exemption has been around for about 10 years, and didn't do much to attract filmmakers to the state. In 2007, the General Assembly passed a 30 percent income tax credit program, and that was the incentive that brought the big surge in movie business to Georgia. HB 386 does not touch that second incentive.

All this being said, my decision about the bill was not an easy one. I think the manufacturing energy tax and marriage penalty eliminations are very good things to do, but am not as pleased about several of the other changes the bill would bring. After a good deal of review and consideration, I concluded the measure was nonetheless an overall benefit to the state, and so I supported the bill. On the House floor, it required about two hours to present, and then passed by a surprisingly bipartisan 155 to 9.

Rep. Doug Holt represents District 112 in the state House. He can be reached at 404-656-0152. His email address is Doug@DougHolt.org.