Legal Briefs

Proposed Tax Reform for Georgia

Published Monday, January 3, 2011

Like a lot of states, Georgia is implementing tax reform. Jim Coyle, a tax attorney with Stewart Melvin & Frost in Gainesville, Ga., discusses how this will affect tax and estate planning.



Question: It seems that we’re hearing a lot about tax changes lately, and Georgia is no different. What is behind all of these proposals?


Jim: Like a lot of other states, Georgia faces significant revenue shortfalls – currently estimated to hover around $2 billion for this new year. Our state Legislature and our new Governor Nathan Deal have quite a task before them.

In his recent State of the State address, Governor Deal recommended eliminating 14,000 state positions, freezing state employment at current levels, and reducing state spending by about 4 percent.


Question: In addition to these reductions in state spending, are we likely to see a tax hike?


Jim: Yes and no. We could see an increase in some state sales taxes but a decrease in income taxes. All of this remains to be seen, but it is quite likely that we will see a tax increase somewhere.


Currently, a special joint Georgia House/Senate committee is conducting hearings on a number of tax recommendations by the “Special Council on Tax Reform and Fairness for Georgians.” This is a non-partisan body made up of state business leaders and economists that was charged by the Legislature last year to review Georgia’s tax code and come up with recommendations.


Question: What are some of the Tax Council’s recommendations?

Jim: Three of the proposals receiving the most attention in the press are a new state sales tax on groceries, a higher cigarette tax, and higher gasoline taxes.


Groceries are currently taxed only by local governments. They have been exempt from the state’s four percent sales tax since the early 1990s. Other than the sales-tax exemption for purchases by local and federal governments, the grocery exemption is the largest tax exemption allowed by the state of Georgia.


The Tax Council estimates that imposing state taxes on purchases of groceries would increase taxes by $472 million – the largest single tax increase recommended by the Tax Council.


The Tax Council also favors increasing the excise tax on tobacco – from 37 cents to 68 cents a pack. This recommendation is lower than the $1 dollar-a-pack tax sought by anti-smoking advocates, but it would still bring Georgia more in line with the cigarette taxes charged by surrounding states.


Currently, state taxes on gasoline are figured in two ways – there is one tax figured on the number of gallons that you purchase, and another tax based on the total amount of your gas purchase. The recommendation is to combine these two taxes into one set tax per gallon, and to tie this combined rate to the national index of highway construction (a price index that tracks price-changes associated with highway construction bid prices).


Question: What are some other recommendations of the Tax Council?

Jim: Much like the federal tax relief package, the Council calls for minimizing deductions, while gradually reducing the state’s personal income tax from 6 percent to a flat 4 percent rate by January 2014. The corporate income tax rate would reflect the personal income tax rate.


The Council also is proposing a low-income tax credit to offset the loss of some standard deductions under the recommended flat income tax. If the new flat income tax were to be enacted, the upshot is estimated to be a 20 percent decrease in most Georgians’ income tax bill.


Businesses also would receive new exemptions on the energy they use – which is intended to help make Georgia more competitive in economic development with other states that allow these breaks for manufacturers and agribusinesses.


People buying cars, boats or planes from their friends or neighbors would have to begin paying a sales tax under these recommendations. Vehicles purchased from dealers have always been taxed, but not so for private sales.


The council is also proposing to add a new sales tax to a number of services that are not currently taxed, such as – dry cleaning, automobile body work, hair cuts, and visits to the veterinarian as well as adding a sales tax to purchases of books and music off the Internet.


These proposals would definitely move Georgia’s tax code to a structure based more on consumption-based taxes – which charge citizens based on what they spend rather than what they earn.


The recession has been the motivation behind the tax-reform movement in Georgia. It will be interesting to see what changes, if any, will come about in this current session of the Georgia Legislature.