Sales and Use Tax on Services

I just received a call to action from the Georgia State Bar regarding Speaker Glenn Richardson's proposal for a constitutional amendment to repeal the collection of certain property taxes and to replace that revenue stream with an additional sales and use tax, this time on services. It has been hotly contested, in the newspapers, blogs, and other local media, throughout the fall.

Now, the House Ways & Means Committee has favorably reported HR 1246 and HB 979.

According to the email from the Georgia Bar, they oppose the new sales and use tax on services because it would interfere with the attorney-client relationship. (In some instances, just the fact that an attorney represents a certain client can be privileged information.) The Georgia Department of Revenue would have the ability, under its audit authority, to have access to a list containing the clients names and the fees paid. Additionally, businesses would be exempt from this tax, so only individuals seeking legal assistance would have to pay the sales tax. This is clearly a disparate treatment and could cause challenges to its constitutionality.

My practice is mostly geared to small businesses and their owners. Think about this from their perspective. Many of my clients will come to me for several issues, both personal and professional. For their company, I will write a buy-sell agreement or succession plan that has many estate plan implications. I will then write their Last Will and Testament and the rest of their estate plan. Part of their legal services will have a sales tax while the remaining part will not. There will be incentives for attorneys and clients to mis-categorize certain legal services in order to avoid the additional tax.

Think about what this will do for you and your attorney. Increased record keeping. More difficult and harder to understand bills. Increased costs for the individual consumers.

This tax does not apply just to your attorneys. It would also apply to many of the professionals that you see on a constant basis, including accountants and CPAs, dry cleaners, beauty technicians (nail, hair, massage), consultants, interior designers, doctors, dentists, and many more.

In addition to the burden on the professionals, remember that you pay your property taxes directly to your county, not the State. This proposed regime would remove almost all of a county's revenue collection authority and place it in the hands of the state government. Under the sales and use tax regime, all the sales and use taxes are paid to the State who then distributes the collected sales taxes to the individual counties. There is at least one current battle going on between a county and the state over the amount of sales tax that should be paid to the county. The State has also been known to rob one portion of its budget to pay for another portion of its budget. With the State handling the collection of sales tax instead of the county handling the property tax, do not be surprised if money would get cut off from the schools to fund another project, perhaps roads, water management, or public buildings or parks.

This is not a good deal for Georgia taxpayers, the counties, or the professionals that you deal with on a constant basis.

Sales Taxes for Service Businesses?

In case you have not been following the news coverage on Georgia's Speaker of the House Rep. Glenn Richardson's tax reform bill, here is a rundown.

A RESOLUTION proposing an amendment to the Constitution so as to provide for the comprehensive revision of provisions regarding taxation and finance and abolish most state and local taxes; to provide for a comprehensive flat tax to be known as the fair tax; to provide for procedures, conditions, and limitations; to provide for local revenue guarantee proceeds; to provide for applicability of prior tax provisions; to change certain provisions regarding certain defaulters; to change certain provisions regarding specific powers and limitations of powers of the General Assembly; to change certain provisions regarding other or supplementary appropriations; to change certain provisions regarding appropriations; to eliminate certain provisions regarding the motor fuel tax; to provide for the submission of this amendment for ratification or rejection; and for other purposes.

In other words, Richardson wants to do away with property taxes and tax services at 4%. However, I can see counties doing the same thing to services that they have done to the sale of goods - every county has added to that base 4% - not to mention occupancy taxes where most counties and/or local municipalities have added another 5-8% tax on hotel stays in addition to sales taxes. Some of the news articles even hint at this possibility.

Georgia General Assembly - Summary of Bill

Americus Times-Recorder - Positive net gain for Georgia since tourism is the second largest industry, demand for services will not change, but demand for land ownership will go up and help landowners, particularly farmers, reduce the cost of business.

Augusta Chronicle - Some are worried that it will hit low- and middle-income people the most, the ones that do not own land.

Augusta Chronicle - The change would hurt businesses, as most outsource at least some of their services (accounting, legal, janitorial), and this additional cost is passed on to the consumer.

The Brunswick News - Some are pointing out that it would help the housing markets not to have property taxes.

And from other Georgia Blogs...

Safe As Houses talks about the property tax deduction that you will have to forego on your federal income tax return.

Tondee's Tavern opposes the bill because it will hurt Georgia businesses, particularly ones near one of the state borders.

Audit Clears Department of Revenue

Back in June, legislators asked if the Gov. Sonny Perdue had the Department of Revenue hold income tax checks in order to support his veto of the $142 million property tax rebate.

Now, a state audit has concluded that there is no evidence that the Department of Revenue delayed cashing the income tax checks. See the "local newspaper" coverage.

What's Going On At The Capitol?

In April, Gov. Sonny Perdue vetoed a bill that would give Georgia taxpayers a collective $142 million property tax rebate. His reasoning focused on the Georgia Department of Revenue's personal income tax collections down 24% in April.

If you filed your personal income taxes by the April 17th deadline, but paid by check, you may have noticed that your check did not clear for over a month. Recently, information has been released that collections for May were up 45.4% ($453 million) over last year.

Legislators are now asking if Gov. Perdue and the Department of Revenue were delaying the deposit of checks to support his veto of the property tax rebate. See story from "local newspaper."

In practice, clients have been hit with other policies initiated by Gov. Perdue "fiddling" with the numbers. Before the Department of Revenue may issue a refund for a corporate taxpayer that has overpaid a specific tax (say state withholding), the company must undergo an audit. After the field auditor says that the Department owes the taxpayer a refund, it may take weeks or months before the Department releases a check to the taxpayed. I also understand the new guidelines for the HOPE Scholarship have left the State with a large surplus for the next academic year.