Currently, the state of Georgia imposes a 7-percent sales tax on energy and utilities consumed by Walker County manufacturing and agricultural businesses. Starting in the new year, that tax will be phased out.
Three cents out of each of the 7 cents levied per dollar has for many years been returned to the local governments, thereby causing a fear of a potential local income deficit after the start of the new year. The Georgia legislature settled this problem in two ways: first, the 7-percent sales tax will be phased out slowly, at 25 percent per year over a four-year period; second, local governments now have the option to choose to enact their own energy excise tax of up to two percent in order to allay the income drop.
The tax changes will not apply to the average resident or small business, only high-usage manufacturing and agricultural applications.
“We’re only talking about the percentage of tax which is applicable to what’s defined as the energy tax,” said LaFayette city attorney representative David Gottleib, “which is the sale, use, storage or consumption of energy, which would have been a taxable event. It’s just tax that applies to your major users of electricity.”
With the loss of the three percent of local tax revenues from high-energy consumers, the city of LaFayette is looking at a total loss of $144,000 per year, according to LaFayette city manager Frank Etheridge. The first three years of losses would not be that high, he explained, due to the phase-out procedure.
“The 25 percent of the current tax that we’re charging that’s going away, our impact at 25 percent a year is in the first year, we’re going to decrease $33,000 starting in January, and I’ve already taken that out of the budget,” Etheridge said. “At the end of four years, 100 percent of that is going away. For us, that equates to $144,000 a year.”
Local governments have the ability to recoup two-thirds of those losses with the implementation of a local excise tax of up to two percent. Affected businesses, after four years of gradual implementation, would still save five percent in taxes compared to current rates, and Walker County and its cities would still see some energy tax income.
“What this proposed excise tax would do is you would, over a period of four years, get two of the three percent back,” Etheridge said. “But instead of doing it all immediately year one, it’s a phase-in. So 25 percent you get the first year. The next year you get 50 percent, the next year 75 percent, and from the fourth year and beyond you get the full two percent.”
The cities of Walker County waited for the county’s decision before voting in favor of their own participation in the new, locally-leveled tax.
“We left it basically for the county to make a decision whether they wanted to impose it or not,” said Etheridge. “Our position has been neutral from that perspective.”
Heiskell said Thursday that she decided to move forward with the implementation of the local 2-percent excise tax in order to keep track of and recoup some of the losses.
“The legislature, this past year, one of the things they passed was doing away with the energy excise tax on manufacture and agriculture,” said Etheridge. “Part of that act, they allowed the local governments – counties and municipalities – to enact a local excise tax of up to two percent.”
Heiskell read a portion of a statement from the Association of County Commissioners of Georgia explaining the tax. The commissioner said she believed there were benefits to approving it, mainly in maintaining the financial records and receiving an audit of the taxes levied, and that for this reason, the county chose to move forward with the tax.
“Counties that do not levy the energy excise tax will have no way to know how much local sales tax they are losing to the state tax exemption on energy used in manufacturing,” Heiskell read from the statement. “Also, the Department of Revenue will not have any information about which manufacturers are taking the exemption...The Department of Revenue does not collect or approve these exemption certificates from the manufacturer. The only oversight occurs if the Department of Revenue conducts an audit.
“If we don’t do this excise tax we’ll never know how much we’re losing,” said Heiskell. “We do need to know how much we’re losing because, for instance, the special-purpose local-option sales tax bond that the citizens voted on was based upon the sales tax that was anticipated being returned so we could pay it, and we have no idea how much we’ll lose or who will file for this.”
The losses will be taken at a 25-percent increase each year over a four-year period, mirroring in opposite the phase-in process for implementing the new tax at the start of the new year.
“We unfortunately don’t have a choice but to do it this way in order to continue to meet our debts,” the commissioner said.
Surrounding counties – Catoosa, Dade or Chattooga – chose not to levy the energy excise tax on their manufacturers.
Although the intergovernmental agreement signed between Walker County and its cities provide for up to a 50-year levying of the energy excise tax, Heiskell said she considers this first year to effectively be a test run, and hinted that the tax may not continue in perpetuity.
“We’re going to do it a year and see how it works because it’s only a half a cent a year per tax, so it’ll be half a cent for SPLOST and half a cent for LOST.
“So at the end of four years there will be no Georgia sales tax on manufacturing. It’ll take the whole four cents,” said Heiskell.
“It’s kind of an open-ended thing that we can’t take the risk on,” she said. “That was a decision that we worked very hard and talked to a lot of people to decide if this is something that we can pass and not do and we can’t.”
The cities as well decided not to take the risk of losing their share of the excise tax once the county announced its intention to move forward with implementation.
“Any county is authorized to implement this excise tax,” said Gottlieb. “The cities within the county can choose to participate or not participate in the collection of this tax. If the cities choose not to participate in the tax, but the county passes the ordinance, the county will collect all of the tax, and the portion that would have gone to the city of LaFayette will go to the county.”
The city of LaFayette voted 4-0 Wednesday evening, Dec. 26, at a special called meeting to approve its participation in the excise tax. Council members lamented the notion of burdening their businesses with a tax during a time of attempted business solicitation, but noted that without their participation, the tax amount would be the same, and the county would take the city’s share of the revenues.
The city hopes it can provide incentives to its businesses with some of the tax revenues, lessening the burden in the long run.
“By choosing to opt in, we can funnel some of the money back, hopefully,” said council member Ben Bradford.
“It’s a no-brainer, really,” he said of the overall decision.