Charlie Harper: No, Georgia Isn’t Increasing Sales Taxes
Wednesday, January 22nd, 2020
There are two components that make up any budget. When most of us think of our budgets, we tend to focus on what we spend, as that’s often considered easier to change than our incomes. When legislators consider a budget, they’re charged with considering not just what is spent from state coffers, but how those coffers are filled in the first place
This truism is lost on many who have internalized that the job of the Republican party is always to cut revenues. As a case in point, Georgia, led by Republican majorities, has been increasing spending in its largest budget category of K-12 education for a decade. Full funding of QBE and teacher pay raises must be paid for, as do the salaries of our law enforcement officers, the roads and bridges we drive on, etc.
The role of state Government is not to make “government small enough to put it in a bathtub and drown it.” Those that ascribe to this philosophy would also prefer to be in the minority rather than the majority. Majority parties have to govern, and there are basic services that the public expects from the state government – even if this fact is ideologically inconvenient for some.
It’s necessary to state this in the preamble of this column to put in clear perspective a bill that passed the legislature last week. Georgia is modernizing the section of its tax code with respect to collection of sales taxes.
The wording on how Georgia collects sales and use taxes has not kept up with innovations in the economy. The result has been that too many sales and services that are subject to taxation have eluded an effective mechanism to collect. Georgia’s Economist Dr. Jeffrey Dorfman estimates the loss at $120 Million per year, or $10 Million per month.
Georgia collects roughly one quarter of its budget revenues from sales and use taxes. Local governments rely heavily on sales taxes as well. Not only do a large part of education and other dollars that flow from the state to counties and cities come from sales taxes, but most counties in Georgia have local option sales taxes, with many if not most counties taxing 3% on top of the state’s 4%.
As our economy has transitioned from one dependent on brick and mortar stores to one that is increasingly centered on e-commerce, Georgia has lost the ability to collect taxes on a significant portion of sales transactions. This is troublesome not only for current and future spending requirements, but also causes a problem for those who want to continue to reduce Georgia’s income tax in favor of a consumption based tax system.
The meat of the bill changes the responsibility of remitting taxes to the facilitator of the online transaction. This helps both to close the loopholes that have allowed some to evade collection efforts, but also reduces the number of entities responsible for forwarding tax dollars due. This makes enforcement and audits easier, similar to when Georgia changed remittance of motor fuel tax responsibility from individual gas stations to wholesalers who distribute gas to those retailers.
One industry that has received focus is that of “rideshares”. Georgia’s position is that they have always been obligated to pay sales and use tax. The two major companies have claimed it does not, and the amount due is in dispute. While this bill will clarify that they do have responsibility to charge and remit taxes, separate bills are expected to address the amount, structure, and likely add some relief to back taxes unpaid
But, to be clear, these are not new taxes. Current law states that the consumer – you and I – are ultimately responsible for remitting taxes that merchants fail to collect. In practice, virtually none of us do, and the state has little ability to track what is being lost.
For those that expect education, law enforcement, and other state services to be funded as economic activity continues to move online, this is an adjustment to ensure the state collects what is due. Nothing more, and nothing less.