DEPARTMENT
OF
AUDITS
AND
ACCOUNTS
270 Washington Street, S.W., Suite 4-114
Atlanta, Georgia 30334-8400
270 Washington Street, S.W., Suite 4-114
Atlanta, Georgia 30334-8400
Russell W.
Hinton
State Auditor
(404) 656-2174
State Auditor
(404) 656-2174
April
13, 2007
Honorable Chip Rogers,
Chairman
Senate Finance Committee
Coverdell Legislative Office Building, Room 325-B
Atlanta, Georgia 30334
Senate Finance Committee
Coverdell Legislative Office Building, Room 325-B
Atlanta, Georgia 30334
SUBJECT: Fiscal
Note
House
Bill 162
Substitute
(LC 18 6487S)
(LC 18 6487S)
Dear
Chairman Rogers:
This
bill provides for an exemption from sales and use taxes for all tangible
personal property sold to nonprofit volunteer health clinics and used
exclusively for the provision of treatment. To qualify for the exemption, these
nonprofit volunteer health clinics must primarily provide treatment to the
indigent, operate as a tax exempt organization under the Internal Revenue Code,
and obtain an exemption determination letter from the state revenue
commissioner. The exemption would be effective during the period beginning July
1, 2007, and ending June 30, 2009. Also, this bill exempts from the sales tax
the sale of tangible personal property used in direct connection with the
construction of a performing arts amphitheater. An amphitheater, as defined in
the bill, refers to a facility constructed after the effective date of bill,
costing in excess of $30 million, and consisting of more than 60,000 square feet
of space. The bill applies to purchases occurring from July 1, 2007, to June
30, 2008. In addition, this bill exempts from the state sales tax qualified
sales of admission tickets, food, beverages, or concessions by an authority that
manages a galleria convention center and performing arts center. Qualified
sales are defined as those sales occurring on or after the effective date of the
bill and until the total amount of exempted sales and use tax equals $3 million.
After such total has been reached, no further sales tax exemption is
allowed.
The
Georgia State University Fiscal Research Center provided the following estimate
of the revenue impact of this bill:
Nonprofit
Volunteer Health Clinics
The
estimated cost to the state for this provision of the bill is extremely
speculative. To qualify for the exemption, a nonprofit volunteer health clinic
must be a tax-exempt organization under the Internal Revenue Code and receive a
determination letter from the commissioner. However, it is difficult to get an
accurate count of current qualifying nonprofit volunteer health clinics in the
state. The Volunteers in Health Care organization (VIH) defines a “free
clinic” as a nonprofit organization that relies on the spirit of
volunteerism to provide health care to the uninsured. This definition excludes
federally qualified community health centers. The VIH also notes that these
“free clinics” may still charge a nominal fee for their services.
The VIH estimates that there is at least one free clinic in every state and that
some states have over 30. Georgia is not listed as one of the states with over
30 clinics. Thus, it is assumed that Georgia currently has 30 qualifying
nonprofit volunteer health care clinics. The VIH estimate that roughly 3
million uninsured people were served in free clinics in 2003 in the country.
Georgia’s share of the uninsured would be roughly 90,000 people, assuming
these uninsured are evenly distributed by population per state.
The
bill requires that volunteer health clinics primarily treat the indigent with
incomes below 200 percent of the federal poverty level. Based on the 2005
federal poverty threshold, this definition would allow individuals with incomes
of approximately $20,000 to qualify for treatment. For a family of four with
two minor children this limit rises to approximately $39,000. In addition, the
bill does not require that these clinics exclusively treat indigent people.
Thus, it seems likely that all of the estimated 90,000 uninsured people would
qualify for treatment in nonprofit volunteer health clinics under the
bill.
Sales
and use tax is only charged on purchases of tangible goods like medical
supplies, medicines and office supplies. Services are not subject to the tax
and prescription drugs are also exempt. In a report summarizing Georgia’s
health care costs for fiscal year 2004, the Kaiser Foundation estimates that 1.9
percent of Georgia medical costs were for medical nondurables and 1.5 percent of
medical costs in the state were for medical durables. The nonprofit volunteer
health clinics’ administrative supply cost is assumed to be 5 percent of
medical costs. Therefore, the proportion of total medical expenses subject to
sales and use tax is estimated at 8.4 percent.
There
are no good estimates for the cost of medical care provided at volunteer health
clinics in Georgia. However, FQHCs and volunteer health centers are likely to
treat the same type of patients with similar ailments. Thus, cost estimates for
FQHCs in Georgia are used.
The
Georgia Association for Primary Health Care (GAPHC) estimates that the yearly
per-patient medical expense at FQHCs is $385. This estimate is considerably
less than the Georgia Department of Community Health (DCH) estimate for the
per-patient expense for Medicaid of $4,510 in fiscal year 2004. This is likely
due to the nature of care provided at FQHCs and volunteer health clinics versus
full service hospitals. Patients that require extensive medical care would
likely be transferred to a hospital rather than receive treatment at an FQHC or
volunteer health clinic. To calculate the lower bound cost estimate for this
bill, the GAPHC estimate of $385 is used. To calculate the upper bound cost
estimate for this bill, the GAPHC estimate will be doubled. This upper bound is
more in line with the DCH Medicaid estimate.
If
medical nondurables, medical durables, and administrative supply cost are
subject to state sales and use tax at a four percent rate, then the total
revenue lost to the state is approximately $116,000 to $233,000 per fiscal year.
If county revenue is included at an average rate of 3 percent, that adds an
additional $87,000 to $175,000 to the cost per fiscal year.
Finally,
Georgia has approximately 5,100 federally tax exempt 501(c)(3) organizations.
These organizations receive approximately $300 million in contributions per
year. It is possible that some current federally tax exempt organizations may
decide to open up volunteer health clinics to take advantage of the state sales
tax exemption. This could add additional cost to the state.
Performing
Arts Amphitheater Facility
This
bill exempts from the sales tax base the sales of tangible personal property
used in direct connection with the construction of a performing arts
amphitheater. An amphitheater, as defined by this legislation, refers to a
facility constructed after the effective date of this legislation, has costs in
excess of $30 million, and consists of more than 60,000 square feet of space.
The legislation applies to purchases occurring after June 30, 2007 and before
July 1, 2008. The estimate assumes that only one facility in the state would be
eligible for the exemption specified in the legislation. It is assumed that the
exemption does not apply to purchases of property used to maintain or upgrade
existing performing arts centers.
Based
on published estimates in the range of $40 million for the expected cost of the
facility, the revenue impact to the state from the loss of state sales tax
revenue from construction expenses associated with the construction of the
amphitheater is estimated to be approximately $2 million in fiscal year 2008.
The revenue impact to the local governments from the loss of local sales tax
revenue from construction expenses associated with the construction of the
amphitheater is estimated to be approximately $1 million in fiscal year
2008.
Qualified
Sales of Admission Tickets and Concessions
The
legislation stipulates that tickets, food, beverages, and concessions sold at
the performing arts center are exempt from state and local sales tax. The
exemption would continue until the combined amount of state and local tax
receipts from the combined sum of all such sales reaches $3 million. After the
tax receipts from the combined sum of all such sales exceeds $3 million, no
state or local sales tax exemption shall be allowed on such items. It is
assumed that this is a lifetime cap of $3 million and not an annual one. This
exemption would be effective for sales occurring upon or after completion of the
facility and until the $3 million tax receipt cap is reached.
The
combined revenue effect to the state and local government from the loss of sales
tax revenue associated with the sale of tickets, food, beverages, and
concessions is shown in Table 1. It is estimated that it will take over 10
years to exceed the $3 million limit.
Table
1. Revenue Effect of Sales Tax Exemption for
Tickets/Concessions/Beverages
($
in 000/State Fiscal Years)
2008 2009 2010 2011 2012 Total
Effect
to State Government -90 -92 -95 -97 -99 -473
Effect
to Local
Government
-68
-69
-71
-73
-75 -356
Combined
Total -158 -161 -166 -170 -174 -829
Sincerely,
/s/ Russell W.
Hinton
State Auditor
State Auditor
/s/ Shelley
C. Nickel,
Director
Office of Planning and Budget
Office of Planning and Budget