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Peach State Politics: Georgia Tax Reform Effort Dies on the Vine

Georgia’s grand experiment to comprehensively rewrite its state tax code came to an anti-climactic halt on April 11, 2011, when the Georgia House of Representatives adjourned without taking up the tax reform bill. In its final form, the bill was unabl

May 17, 2011

Georgia’s grand experiment to comprehensively rewrite its state tax code came to an anti-climactic halt on April 11, 2011, when the Georgia House of Representatives adjourned without taking up the tax reform bill. In its final form, the bill was unable to withstand a substantial political attack with uncertainty as to the net revenue impact of the bill and whether changes in the personal income tax calculation would create a tax increase on the middle class.

The 10-month tax reform saga began in June 2010, with legislation creating the Special Council on Tax Reform and Fairness for Georgians (the Council), which issued a comprehensive report on January 7, 2011, generally recommending a transition from income taxes to more broad-based consumption taxes. (See Sutherland's January 10, 2011 Legal Alert for detailed coverage of the Council’s report). The original tax reform bill, H.B. 385, was originally introduced to the Special Joint Committee on Georgia Revenue Structure (the Joint Committee) mirroring the recommendations of the Council and intending to be revenue neutral.

Lawmakers worked furiously to develop a tax reform bill that was politically tenable, and the Joint Committee favorably reported a substantially revised version (H.B. 387) to the House on March 30, 2011. H.B. 387 dropped many of the provisions contained in the original bill, but would have still reduced the personal income tax rate to 4.5% and eliminated most personal deductions. The bill also would have expanded the sales tax base to car repair services and casual sales of used cars, exempted energy used in manufacturing from sales tax, and imposed a new Communications Services Tax. However, troubles mounted when the state auditor estimated that the bill would reduce state revenues by $220 million rather than being revenue neutral. A final attempt to reach a compromise by tweaking the personal income tax changes and delaying the effective date of the energy exemption for manufacturers was effectively killed by an 11th hour and hotly debated fiscal report stating the bill would raise taxes on many middle income taxpayers. Proponents of the bill view this as a temporary setback and continue to hope that the House will reconsider tax reform in this summer’s planned Special Session or next year’s legislative session. Lawmakers have until April 2012 to take up the Council’s recommendations.

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