Frequently Asked Questions:
■The Great Plan For Georgia - Overview
■Tax Commissioners and Assessors
■Registration of Personal Property
■Counties, Cities, and School Districts
The Great Plan for Georgia is a proposed constitutional amendment to eliminate all property taxes and the entire ad valorem system of taxation. GREAT is simply an acronym that stands for Georgia’s Repeal of Every Ad Valorem Tax. As far as we can tell from our research, no other state in the nation has ever completely repealed the ad valorem tax system. Several states have taken on initiatives to modify or partially eliminate the ad valorem tax system. In our neighboring state of South Carolina, they have recently increased their sales tax rate by 1% to eliminate the ad valorem component for funding schools on homesteads. In Florida, a ballot initiative proposing a constitutional amendment is scheduled for a vote in January. Under that plan, Floridians will decide if they exempt up to 80% of the value of their home (for a total home value capped at around $300,000) in exchange for a reduction in property taxes for home owners who claim a homestead exemption in Florida.
In our state, there are various and sundry exemptions and systems for giving credit to home owners. In fact, virtually no county or city has the same series of exemptions or methods for locking in values. In communities where values have been locked in, such as the Columbus area, there is an “us” and “them” tax system. The “us” is for all those people that have owned properties for a long time whose values have been frozen. The “them” are the property owners who have recently bought a home or moved into the Columbus area who are paying much higher taxes than their neighbors who have owned properties for a long period of time. Thus, there is additional inequity built into an already inequitable system of valuing properties and indiscriminately allowing taxes to be assessed on land and homes.
It is our belief that the ad valorem tax is a tax on the static accumulation of a particular kind of wealth such as land, buildings or real and personal property. This tax does not apply to other forms of property such as stocks, bonds or banking accounts. Since the biggest asset most people possess is their home, we do not believe that this system continues to have viability in the 21st century. Instead, it is our belief in the 21st century market economy, which is largely services-based, it makes more sense to tax the exchange and receipt of money and wealth rather than the ownership of certain property.
This proposal we call the GREAT plan proposes to expand the sales and use tax base and refer to it as a sales, use, and services tax.
The proposal eliminates virtually all exemptions except for a few transactions such as transactions involving agriculture, industrial, and business to business where it may not make economic sense to tax certain areas. Otherwise, we will be imposing the sales tax on the final delivery of all goods and on the delivery of all services such as attorneys, accountants, doctors, hairdressers, mechanics, lawn maintenance, etc. By taxing services and eliminating most exemptions, we can generate the same amount of money which is being generated from the property tax, and we can eliminate all property taxes in Georgia. The only exception is bonded indebtedness which people have already incurred and will continue to pay taxes toward until the bonded indebtedness is paid.
The process of determining whether we adopt this constitutional amendment as set forth in HR 900 is a fluid and changing process. The final version of HR 900 has not been prepared. The version of HR 900 as originally introduced is simply an idea and is by no means remotely the final product. We have put these ideas in place and the ideas have changed several times as we have gathered more information and received more input from the public. It is not our intent to cut taxes, but rather, to reform the system of taxation in Georgia. As we go through this process, we need the help of all members and all citizens of this state.
We have talked of various options of sales, use and services tax, income taxes and property taxes. We have opened a dialogue in this state on serious reform of taxes so that Georgia may lead the nation in this field. Although the process is developing and we need your input, we have developed some questions and answers for your consideration. These are typical questions which may come up followed by the best answer we have at this time.
Tax Commissioners and Assessors
Q - If we no longer have property taxes will we need tax commissioners?
A -Yes. We will continue to have the job of tax commissioner and the employees necessary to carry out their functions. Our discussions have included letting the tax commissioner be the conduit for the redistribution of the monies received, but more importantly the tax commissioners will act as the tag agents for all vehicles, boats, and airplanes. Since vehicles will always have to be registered and since there are many other things we do when we tag autos, this is a vital function that we will need to continue.
Q - If we eliminate property taxes, will we need the office of tax assessor?
A - No, but we will put permissive language in this statue to allow each county to decide if they maintain the office of tax assessor or simply agree to contract on what limited properties need to be assessed or until bonded indebtedness is retired.
Registration of Personal Property
Q - If we eliminate taxes on all personal property such as cars, planes, and boats, how will we register them?
A - We are still working on this. Quite clearly, many airplanes that would otherwise be parked in Georgia are not because of Georgia’s extremely high ad valorem tax system. On the other hand, there should be a process of registering airplanes and boats as well as cars. We are contemplating allowing a charge of some fee across the board for planes, a different charge for boats, and a different charge for registering cars.
Q - Will we tax medical and hospital services such as doctors and therapists?
A - There has been a lot of debate and discussion on this issue, and right now we do not have a yes or no answer. Visiting a doctor is an exchange of money from you to someone else just the same as it is to a mechanic, an attorney, an accountant or other person who performs a service. However, many medical bills are paid by Medicare or Medicaid, and we cannot collect sales tax on those payments. Additionally, we are considering exempting hospital and major medical costs. Keep in mind that most physicians who provide medical services own medical buildings or lease them. Contained within those leases and ownerships is the payment of ad valorem taxes. When there are no ad valorem taxes, the physicians will be in a better position to either lower their rate or absorb the tax themselves.
Q - Will business to business sales of goods and services be taxed?
A - We’re not certain at this time. We’re trying to be very sensitive in taking all comments and suggestions from the business community. While it certainly makes sense not to tax many business to business services, for simplicity in administering this new tax plan, it makes more sense to simply tax the exchange of money for goods and services. As we go through this process we will try and have a fine-tuned answer to this question. This is a fluid and changing proposal, and much more information is necessary.
Q - Will raw goods be taxed in the manufacturing process?
A - This is a developing process and we need more information. Certain raw goods may need some type of sales tax in order to allow businesses to pay their fair share. The goal of this reform is not necessarily to cut taxes but to reform the system and have a different, unique, and improved way of taxing. One idea is to tax raw goods at only a fraction of the 4 percent sales tax. Currently we are looking at a rate of 1 percent (1/4 of the State rate).
Q - Will there be sales taxes put back on groceries?
A - Not if you are a Georgia citizen. Initially, when a customer buys food products in Georgia, a tax will be charged at the cash register. However, for each Georgia citizen who fills out an individual Georgia Income Tax return, they will be given a refundable credit equal to the amount of grocery sales tax an economist estimates they would pay based upon an economic model with a maximum income of about $30,000 per year for a family of four. What this means is everyone will get the same refundable tax credit for the amount of taxes they paid on groceries based upon an economic chart IFthey fill out individual income tax return. I suppose it goes without saying that those people who are not legally within the United States, those people traveling through Georgia, and those people who pay no taxes otherwise will then be paying the taxes and will not be getting the refundable credit.
Q - Will there be a sales tax on the sale of a house?
A - No. We do not intend to tax the transfer or exchange of real property. That is what the ad valorem tax system is all about. However, if an attorney performs a service in regard to closing the house and charges a fee, that is a service that will have a sales tax on it. If a real estate broker performs a service of listing and or selling a house, that is a service and that will have a sales tax added on it.
Counties, Cities, and School Districts
Q - How will counties, cities and school districts receive monies for operating expenses?
A - The money will be collected in the form of the sales, use, and services tax and redistributed by the state to each governmental entity pursuant to a statutory contract between the state and each county, city and school district. The formula for distributing that money is currently being developed, but a few things are certain. First of all, there will be two separate formulas: one for education expenses and one for all other expenses. Secondly, counties, cities, and school districts will be guaranteed to receive not less than the amount they made from property taxes as of June 30, 2007. Third, there will be a separate formula for growth systems.
Q - Will counties, cities and school districts lose control over the amount of money they receive?
A - No. Absolutely not. We will guarantee each county, city and school district will receive not less than the amount they are currently receiving from the imposition of the ad valorem tax (excluding locally approved bonded indebtedness for maintenance and operation). That money is theirs to spend as they see fit.
Q - What will happen to the bonds (bonded indebtedness) which have been approved for ad valorem general tax revenue payment by counties, cities and school districts?
A - In order to be equitable, the ad valorem tax system will continue with some minor modifications as long as there is debt on the bonds. If a local community has voted to tax themselves with a local bond issue it is only fair that that local community retire that debt. So, the property owners and tax payers in that area will continue to receive a tax bill under the same system in place today but only for the amount of the bonded indebtedness and only until the debt is paid off.
Q - Will there be future bonded indebtedness for counties, cities and school districts if a local community wishes to add property bonds to raise money?
A - Yes, although we have had some reluctance in this area, there has been a lot of discussion of local control. So, after all bonded indebtedness is paid off, a community may wish to reissue bonded indebtedness to be paid by the real and personal property owned within a taxing jurisdiction. In order to do this, the local taxing jurisdiction will have to seek approval from their local legislative delegation to approve such a proposal. The General Assembly will then be required to have a two-thirds vote approving the measure. Then, when the question appears on the ballot, in order to be imposed, it will have to receive two-thirds of all votes cast at that particular election, thus raising the bar to a very high level.
Q - What will happen to the current local option sales tax (LOST), special purpose local option sales tax (SPLOST) and education local option sales tax (ELOST)?
A - We do not intend to end the current LOST, SPLOST or ELOST which a taxing jurisdiction has approved. Because the GREAT Plan expands the sales tax base, these taxes will bring in more money than they currently do. And so, under HR 900, local governments would be able to use LOST revenue not just on capital improvements, but also on maintenance and operation. We think the statutes should be changed to allow 50% of such revenue to be used for maintenance and operation (M&O).
Q - Will new LOST, SPLOST and ELOST be available to communities who wish to have more control and more taxation for any needs that local jurisdiction has?
A - Yes. Once a LOST, SPLOST or ELOST has expired, we will allow for a renewal of the tax subject to adoption by the local taxing jurisdiction and a referendum to be approved by the voters at that particular election and to be approved by at least 60% of the voters. Again, we are raising the bar, but not as high as required for future bonded indebtedness.
Q - Will we expand the ability to use the LOST, SPLOST or ELOST to other than capital projects?
A - Yes. Because the GREAT Plan expands the sales tax base, these taxes will bring in more money than they currently do. Under HR 900, local governments would be able to use LOST revenue not just on capital improvements, but also on maintenance and operation.
Q - Can we really adopt a sales and use tax of 4% with zero property tax?
A - Yes. If we eliminate most of the 127 exemptions and increase the base of the sales tax to all services professional and otherwise, enough money will be generated to pay for all of the taxes which fund local city, county and school district operations. That would mean we keep the sales tax rate the same and have no property taxes (except for the bonded indebtedness previously mentioned).
Q - Do you really think we can eliminate the sales tax exemptions and tax all services?
A - I’m not sure. We are going to let the people of Georgia decide that, but right now it appears many of the special interest groups that have the exemptions are going to fight very hard to keep them. We have heard from every group that has an exemption. They will try to sabotage this proposal every chance they get. Most likely, we will end up with some exemptions, but not many, and a tax on virtually all services.
Q - What is the most likely proposal that will come to us for a vote?
A - I believe a simple 4-0 plan is the most likely end result. The 4-0 plan places 4% sales, use and services tax on all goods and services at point of final delivery with little or no exemptions and eliminates property taxes. However, because there are some exemptions and some credits, we will probably not be able to lower the income tax rate at this time. But, we will have no property taxes in Georgia. Depending on the dynamic economic impact of the GREAT plan, we may be able to lower or eliminate the income tax in the future.