By Mike Klein
Georgia online shoppers would be required to pay state sales tax for more purchases starting on New Year’s Day 2013 if tax reform legislation unveiled on Monday becomes law.
Georgia shoppers currently pay state sales tax only to online retailers that have a bricks-and-mortar presence in the state. The proposed tax reform bill would expand the number or retailers who are required to collect state sales tax by eliminating the bricks-and-mortar distinction.
Expansion of online purchase state sales taxes and changes to taxes on personal motor vehicles are the two biggest consumer focused headlines from a tax reform package that makes very few big headlines. Sen. Donald Balfour presented the bill during a hearing Monday and even he admitted, “I don’t think there’s anything brand new in here that you are literally seeing for the first time.”
The 2010 Special Council on Tax Reform predicted Georgia would lose up to $410 million this year because a 1992 U.S. Supreme Court ruling exempts retailers like Amazon.Com from collecting sales taxes in states where they have no physical presence. States argue they have lost billions of dollars while local brick-and-mortar retailers say they compete at a disadvantage.
One issue is the definition of “nexus” which is the legal term for bricks-and-mortar physical presence. The U.S. Supreme Court described “nexus” as a true physical presence, according to the Institute for Local Self-Reliance which tracks how states have reacted to the 20-year-old SCOTUS opinion.
New York was the first state to expand the definition of “nexus” with a 2008 law that specifically included internet-only retailers. The Institute for Local Self-Reliance said the four-year-old law stipulated “that web retailers have nexus in New York and must collect sales taxes if they have sales affiliates in the state that generate a combined $10,000 a year or more in revenue for the retailer.”
At least eleven states passed similar laws. Arkansas and North Carolina require online retailers to collect and remit state sales taxes if they generate $10,000 or more in annual sales. Rhode Island has a $5,000 threshold. California established a $500,000 threshold but it taxes online retailers located in the state, including Amazon.Com. The Georgia bill would establish a $50,000 threshold.
The National Governors Association and National Conference of State Legislatures began to address this issue with their 1999 Streamlined Sales and Use Tax Agreement project. Forty-four states including Georgia and local governments are cooperating to identify how states can collect sales taxes from internet-only retailers. Last August the Main Street Fairness Act was introduced in the U.S. Senate as another step to help states to overcome the 1992 Supreme Court ruling.
Georgia’s 2012 tax reform package was publicly unveiled during a half-hour special committee hearing that was notable for its lack of drama. Most proposals are neither dramatic nor controversial: they include a reduction in the marriage tax penalty, a $65,000 tax free cap on retirement income, elimination of a film industry sales exemption, an expected four-year phase out of sales taxes charged on energy used in manufacturing and the reinstatement of sales tax holidays for school supplies.
The state would also eliminate sales tax paid on new or used motor vehicle purchases from dealers along with the annual ad valorem property tax. Instead, the state would begin to charge a one-time title fee on all new and used vehicle purchases with revenue split between state and local governments. The title fee would be charged on all sales made by dealers or in sales between individuals. People who move to Georgia would be required to pay the title fee, except for members of military families.
Many of the biggest recommendations from the 2010 Special Council on Tax reform are still missing and will wait until at least next year. There is no proposed change to the state sales tax – other than voters statewide will be asked in July to approve a 1 percent special local options sales tax to fund transportation projects.
The legislation unveiled Monday contains no change to Georgia’s 6 percent maximum personal and corporate income tax rates. A groceries sales tax idea died quickly last year because of political realities. There also will be no changes to taxes levied on internet services, taxes levied on cigarette or liquor sales, taxes levied on motor fuel sales, taxes levied on professional services or taxes levied on insurance policies.
House Speaker David Ralston has said personal income tax rate reform should be a priority but it will wait until next year. Georgia’s 6 percent rate is not competitive with Florida and Tennessee that levy no personal income tax. The Legislature has six days remaining on its calendar and the session is expected to end next week. Another two-hour hearing is scheduled for 9:30 Tuesday morning.
