Georgia Governor Nathan Deal signed three bills that will enact a wide range of changes to Georgia’s tax structure and procedure (HB 386, HB 100, and HB 846). These changes include a new sales tax exemption for energy used in manufacturing, an affiliate nexus provision, creation of a new Georgia Tax Tribunal, publication of letter rulings, and changes to the taxation of motor vehicles, among others. The bills are the culmination of the comprehensive tax reform effort started in 2010 by the Tax Reform Council. While the bills fall short of the dramatic changes originally proposed by the Council (which included taxation of services and groceries, and communications tax reform), they nevertheless include a number of taxpayer-friendly changes.
HB 386, signed by Governor Deal on April 19, 2012, is the primary vehicle for the changes. The most high-profile change in this bill is a new sales tax exemption for energy used in manufacturing that will be phased in over four years. The exemption applies to both state and local sales taxes, other than the optional 1% local education component. Georgia’s imposition of a sales tax on energy inputs was seen as a competitive disadvantage to the state’s ability to attract and retain manufacturing jobs, particularly because several neighboring states already offer an energy exemption. To allow local jurisdictions to replace lost revenues, the bill authorizes a referendum to impose local excise taxes on energy at a rate of up to 2%.
HB 386 also codifies much of the existing sales tax manufacturing exemption regulation applying the “integrated plant” theory. Ga. Comp. Rules & R. 560-12-2-.62. The existing statutory exemptions that the regulation compiled are repealed and replaced with the new consolidated statutory exemption. A separate new exemption for “agricultural production inputs, energy used in agriculture, and agricultural machinery and equipment” accomplishes a similar consolidation of the numerous existing agriculture-related exemptions. The changes largely are a codification and reorganization of existing law.
Other significant changes made by HB 386 include: (i) a click-through sales tax nexus provision with a $50,000 annual gross receipts threshold along with an affiliate nexus provision; (ii) replacement of the sales tax on motor vehicle sales and the annual ad valorem tax on motor vehicles with a new 7%, one-time “title fee” roughly equivalent to the present sales tax (but eliminating the current exemption for casual sales); (iii) new limitations on the conservation easement tax credit; and (iv) elimination of the sales tax exemption for certain film production equipment and services.
HB 100, signed by Governor Deal on April 19, 2012, creates the Georgia Tax Tribunal, a new independent, executive branch forum dedicated to tax appeals. The highly anticipated Tribunal, which will be an autonomous division of the existing Office of State Administrative Hearings (OSAH), is expected to be a valuable new option for Georgia taxpayers.
Some of the important features of the Tribunal will be that: (i) taxpayers will have the option to bring appeals of assessments and refund denials to the Tribunal or to Superior Court; (ii) the Tribunal is independent from the Department of Revenue and the Commissioner cannot override the Tribunal’s rulings; (iii) the administrative law judge, to be appointed by the Governor, will be proficient in state tax law with “at least eight years” of tax law experience; and (iv) there is no “pay-to-play” requirement. Formal discovery and depositions are available but informal discovery is encouraged. The Tribunal will issue published decisions, and the losing party may appeal to the Fulton County Superior Court. Taxpayers may begin filing petitions to the Tribunal on or after January 1, 2013.
Finally, HB 846, signed by Governor Deal on May 1, 2012, will provide statutory authorization for the Department of Revenue to begin publishing redacted letter rulings. The bill will apply prospectively to rulings requested by taxpayers after the date the bill becomes law, although the Department is presently seeking permission to publish redacted versions from taxpayers that have previously been issued letter rulings. There has been a shortage of published guidance available to Georgia taxpayers, and the published decisions of the Tax Tribunal, together with published letter rulings, will go a long way toward remedying that shortage going forward.