Sunday, February 24, 2008

State House Update - Tax Reform.

Friends and Neighbors-

I want to share information on tax reform legislation being debated in the Georgia General Assembly. The proposal, formerly called the GREAT plan, has changed considerably since Speaker Glenn Richardson introduced it last year. The present version would provide local school property and vehicle ad valorem tax relief through the state sales tax. It would also freeze property tax reassessments and limit local government (property tax) growth.

I encourage you to scan down to 3 examples that show one view of how the tax proposal could affect you.

My intent is to offer an abbreviated explanation, not to comprehensively address advantages or concerns expressed about the tax reform package. The legislature is also considering numerous other tax proposals involving sales, income or property taxes. I can't predict which measure or package will gain final passage before session ends. I expect some form of state tax reform or tax relief to pass. But rarely does a significant proposal on any matter complete the tortuous legislative process intact. I'm confident the varied perspectives and needs of Georgia will be entered into the final equation - just as they should be.

Like me, most legislators are grappling with what would be best for their district and Georgia as we ask questions, sift through data and offer modifications. In part, I'm supplying this information to provide you a (inadequate, but earnest) glimpse of how I'm evaluating all tax proposals. Keep in mind, major tax reform proposals would require a statewide November voter referendum.

I will say this: Most Fulton County taxpayers feel they are overburdened with combined local, state and federal taxes. I agree. Whether a final compromise means overall tax reform or incremental change, I'm hopeful it will help create a more vibrant Georgia with less overall government.

Thank you for the opportunity to serve House District 46.


Jan Jones

State Representative - District 46
(Serving northwest Fulton, including Roswell, Milton, Alpharetta and Mountain Park)

Proposed Georgia tax reform

Some ramifications for replacing local school property and vehicle ad valorem revenues with a state sales tax

What would this mean to a homeowner in north Fulton?

This proposed tax reform package would result in a significant net tax cut for many residents in House District 46 because of the combination of property values, vehicle values and millage rates. The examples below utilize the 17.825 Fulton County school millage rate ($17.825 per $1000 of home value)

Example 1

$300,000 Appraised value of north Fulton homeowner's residence
$120,000 Assessed value of residence ($300,000 x 40 percent)
$2,139 School property tax amount ($120,000 x 17.825 mills
$496 County/school/city tax on vehicles (2 cars; $18,000 value; 34.441 mills)
$2635 Total school and vehicle tax amount

$1,818 Total school and vehicle tax amount after federal/state 31% income tax deduction ($2,635 x 69%)

$45,000 Breakeven - This homeowner would receive a net tax cut if he spends $45,000 or less (after-income tax/social security dollars) per year on grocery-food items and the newly-taxed services, which are explained further below. The spending that will be subject to the new tax does NOT include the homeowner's spending on mortgage and car payments; education and daycare expenses; health and medical costs; new construction/additions to home; and all other items currently subject to the state sales tax like clothing, toiletries, cars, furniture and electronics. Calculation: 4 percent state sales tax X $45,000 = $1800

Example 2

$500,000 Appraised value of residence
$200,000 Assessed value of residence
$3,565 School property tax amount
$827 County/school/city tax on vehicles (2 cars; $30,000 each)
$4,392 Total school and vehicle tax amount

$2,679 Total school and vehicle tax amount after federal/state 39% deduction

$67,000 Breakeven - This homeowner would receive a net tax cut if he spends $67,000 or less (after-tax/social security dollars) per year on grocery-food items and newly-taxed services.

Example 3

$800,000 Appraised value of residence
$320,000 Assessed value of residence
$5,704 School property tax amount
$1102 County, school and city ad valorem tax on vehicles (2 cars; $40,000 each)
$6,806 Total school and vehicle tax amount

$4,016 Total school and vehicle tax amount after federal/state 41% deduction

$100,000 Breakeven - This homeowner would receive a net tax cut if he spends $100,000 or less (after-tax/social security dollars) per year on grocery-food items and newly-taxed services.

How would the 4 percent state sales tax be expanded to reimburse local governments for school property and vehicle ad valorem tax revenues?

The state sales tax would be expanded to:

- Food items such as Chiquita bananas and Oscar Mayer hotdogs. Fulton County, the FC School Board and the cities already divide up 3 percent in local sales tax revenues on food items. Non-food grocery products such as Kleenex and Pert shampoo are already subject to 3 percent local sales taxes and a 4 percent state sales tax. Low income Georgians would receive a credit on their income tax returns.

- Many services, such as haircuts and car washes. No more than $10,000 would be taxed for any single vender (example - lawyer fees for a divorce). This limits the tax liability to no more than $400 for high-ticket services that cost more than $10,000.

- Excluded from the 4 percent state sales tax would be health-related and medical services; educational services, such as tutoring and tuition for college or private school; daycare; services related to new construction of, or additions to, a home; business-to-business transactions. Prescriptions would continue to be excluded from the state sales tax.

Would a homeowner's entire local school property tax be paid through state sales tax revenues?

The sales tax would pay 98 percent. The Fulton County School Board property tax has two components, which are levied on property and automobiles. The first, 17.825 mills, funds maintenance and operations (M & O) for the school system. State sales taxes would replace the M & O amount. The "amount due" appearing on the yearly tax bill for your home and automobiles would show as "zero," and the state would pay directly to the school system the amount for all homes and personal automobiles that would otherwise have been paid by the homeowner.

The second portion, .282 mills, would remain on taxpayers' bills. This portion of the total millage rate was approved earlier in a local referendum to pay bonds for long-term building projects. This tax will expire in several years. The state sales tax would not pay this amount. This amount represents 2 percent of the total millage rate for Fulton school taxes.

What is the thinking behind the proposal to pay local public education costs with a 4 percent state sales tax?

Everyone benefits from having a strong public education system and an educated population, but homeowners often bear a disproportionate share of the financial burden. School property taxes can add considerably to the cost of home ownership. Some say that you never really own your home because the "rent" is due each year in the form of a property tax.

Proponents say this proposed tax plan would spread out the tax burden for public education so ALL Georgians (including non-citizens and non-residents) would more evenly pay the cost. Opponents say sales taxes move up and down with the economy and fear the tax revenues would not be as dependable as property taxes.

School systems would continue to create their own budgets. School systems would receive an amount from the state equal to the total property tax collections they would have received directly from home and car owners. Currently, the state pays a portion of Georgia public education costs through state income and sales taxes, and local school boards make up the remainder with property taxes.

A similar precedent exists today in which the state pays a portion of local property taxes. The state funds an additional $10,000 homestead exemption through the "Homeowner Tax Relief Grant." The state sends each county a check equal to the value of this homestead exemption for all homeowners within that county. Homeowners receive the credit on their property tax bills.

The fiscal note, a professional tax analysis that shows how much revenue tax legislation would generate or give up, shows the proposed state sales tax on some services and food would generate a similar amount to what local homeowner and automobile school property taxes generate. The fiscal note shows an overall modest state tax revenue reduction; others say it will bring in a surplus. The legislation requires that any future surpluses generated by the expanded sales tax be applied to further property tax relief for Georgia citizens to prevent the plan from increasing the size of state government.

Would school boards increase their millage rates if state tax collections pay school property taxes?

No. The legislation would also freeze property tax reassessments on homes and commercial properties for school boards, counties and cities. Home reassessments could increase yearly up to 2 percent and commercial reassessments up to 3 percent. Fulton County (and the city of Sandy Springs) and a number of other Georgia counties already have similar freezes in place.

The legislation would additionally restrict increases in local government property tax spending to no more than the inflation rate plus the value of new construction. This cap could be increased by local referendum and funded locally.

School boards rely expressly on property taxes for the local portion of education funding, except for capital construction paid through a one- cent sales tax. Cities and counties have a variety of revenue sources, including property taxes, one-cent sales tax, fees and fines. Many cities and counties derive about one-third of their overall budget from property tax revenues.

More details on this proposed comprehensive tax reform plan:
The plan includes several measures: HR 1246, a constitutional amendment, and HB 979, the enabling legislation and another listed below. You may read the bills at
* Effective Jan. 1, 2009, Georgians no longer would pay ad valorem taxes on their personal cars and trucks. The state would reimburse counties for the revenue they lose.
* Effective Jan. 1, 2010, Georgia homeowners no longer would pay school ad valorem taxes. School systems would continue to set millage rates and bills would be issued, but the state would reimburse them penny-for-penny for the amount they otherwise would have collected from homeowners.
To fund all of that, here's what also would happen:
* In 2009, Georgians will start paying state taxes again on groceries, and lottery tickets would be taxed.
* In 2010, consumers will start paying sales taxes on services they use, most of which are not now taxed. There will be no sales tax on services like medical, education, child care and business-to-business transactions.
There is an additional part of the package: SR 796. It does two things:
* It freezes property assessments at the 2008 level, but would allow annual increases of no more than 2 percent for residential property and 3 percent for commercial.
* Effective Jan. 1, 2009 it also would cap local government spending. Unless local governments specifically requested and got voter approval to go higher than this, they could spend no more in one year than they had received the previous year, plus the government inflation rate and the value of new construction added to the local property digest.


Anonymous said...

Be careful, very careful, remember when they were helping us by deregulating natural gas!

There's an old saying: "Beware of the drummer puffing his wares"

Anonymous said...

It sounds like these proposals are pretty much dead for 2008, and I mourn the loss. I bought a house in the City of Alpharetta this year, and my property taxes are about 1/3 of my 30-year fixed rate mortgage. At the rate the property taxes have been increasing this decade, my property tax bill will be bigger than my mortgage in 10 or 15 years. By then, I will probably be forced to move to a county with significantly lower rates (which fortunately includes all neighboring counties). Sigh. Perhaps these proposals will be reintroduced next year, and fare better then. I certainly hope so.