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Georgia Governor Proposes Modest Sales Tax Reform, Restructured Jobs Tax Credit

1 min readBy: Joseph Bishop-Henchman

Georgia Governor Nathan Deal (R) had this to say in his 2012 State of the State Address:

First, I am proposing the elimination of the sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on energy used in manufacturing, a move that will align us with many of our top competitors. This will have a dramatic impact on manufacturers’ overall cost structure and vastly improve the competitive position of our producers.

Secondly, I am proposing sales and use tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. s for construction materials used in projects of regional significance, giving us an important tool when competing with other states for projects creating large numbers of jobs.

A third piece, we are proposing to restructure Georgia’s Job Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s and Quality Jobs Tax Credit programs. The programs now in place was created in 1994, at a time when the competitive landscape was far different than the one our businesses operate in today. We will modernize our job tax credits to better incentivize small business growth and to help every Georgia community compete with their regional peers.

The first two steps are good moves. A properly structured sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. should tax all goods and services once and only once, but many states tax business purchases. By doing so, tax is paid when the business buys raw materials and again when it is sold at retail: multiple taxes on taxes, or “pyramiding.” This causes distortions and harms economic decision-making.

I’m eager to see precisely what Governor Deal is proposing with regards to restructuring the jobs tax credit. It needs it. While these credits make for a good political soundbite, at best they distort business investment decisions and at worst they subsidize companies for doing something they would have done anyway.

More on state tax policy here.