Georgia Sales Tax
Georgia cities provide 69% of Georgia's jobs and 67% of Georgia's commercial property. Although Georgia municipalities produce a majority of business in Georgia, those same municipalities have diminished local control over the sales tax they generate.
Georgia has several different versions of optional sales tax. While OCGA § 48-8-1 et. seq. authorizes the collection of sales and use tax, the subparts of Chapter 8 distinguish various options.
LOST
Joint County & Municipal
Sales Tax
OCGA § 48-8-80 to 97
HOST
Homestead Option
Sales Tax
OCGA § 48-8-100 to 109
MOST
Municipal Option
Sales Tax
OCGA § 48-8-200 to 212
The LOST (authorized for all counties and cities) collects sales taxes from transactions county-wide (i.e., in the unincorporated county and in the incorporated county / city). After negotiating a distribution split in accordance with OCGA § 48-8-89(b), the revenues are split between the county and respective cities in accordance with a signed certificate.
The HOST (authorized for all counties) similarly collects sales taxes from transactions in the county and city. Unlike LOST, the HOST may authorize the county to retain all HOST revenue for county-only distribution. OCGA § 48-8-103 & 104 (e.g., Rockdale Co.) An "equalized" HOST allows distribution to municipalities. OCGA § 48-8-109.5 (e.g., DeKalb Co.) A "revised" HOST allows distribution to municipalities. OCGA § 48-8-109.19 (not used) Exempting homestead properties causes a property tax differential between homesteaded properties and others. Lessons Leared about HOST (p. 10) shows that in 2014 DeKalb Co. businesses paid 11.27 mills higher than homestead property owners / Rockdale Co. businesses paid 20.24 mills higher than homestead property owners.
The MOST (currently authorized for only four cities) collects taxes from transactions in a city, and the city retains all MOST revenue distributions for the exclusive benefit of water & sewer projects. OCGA § 48-8-206
*In 2023, Rep. McCollum in HB 146 attempted to expand MOST to cities that span 3 or more counties.
**There are also "special" sales tax options, such as: SPLOST, ESPLOST, TSPLOST, etc...
***Georgia municipal millage rates vary from 0 to 13+ (compare millage rates).
Sales Tax Imbalance of Power
Under the current sales tax options, there exists an imbalance of power between the county and the respective cities.
(a) If LOST were to lapse, the county may replace LOST with HOST - a sales tax similar that adopted in Rockdale Co. that is not shared with cities and only rolls back property taxes for properties holding a homestead exemption. This likely substantially increases the sales tax funds available to the county.
(b) With counties having an alternative means of collecting sales tax with HOST, that legislative scheme allows a county to threaten a LOST lapse with temporary ramifications. After the LOST lapse, the county may immediately propose a vote for the HOST, and the temporary loss of sales tax to the county would only occur for as little as one year. On the contrary, having no alternative means of collecting sales tax for its general fund and virtually no means of access to MOST for a water/sewer fund, cities have no capacity or strategic stance to threaten the lapse of LOST.
(c) With a large county-wide property tax base, a minor millage rate adjustment could recoup the funds generated by LOST. With a much smaller municipal property tax base, the same option does not apply.
(d) Counties are able to "speak with one voice" for negotiations. Cities, often of varying size, may not have the same needs throughout the entire negotiation, which leads to unique circumstances for the position of each city. For example: populations may differ, services offered may differ, retail base may differ, and county/city interpersonal relationships may differ.
LOST Deficiencies in Protocols
While obviously well intentioned and responsive to the requests of counties and cities, implementing the present LOST scheme exposed some deficiencies in protocols.
(a) LOST presently states in OCGA § 48-8-89(b) that "the distribution of the proceeds of the tax as specified in the certificate shall be based upon, but not limited to, the [eight] criteria." While the terms "but not limited to" may be beneficial to ensure other relevant factors are included in negotiations, it may also cause deficiencies toward objective negotiations and/or resolution by an independent third party.
(b) The list of eight criteria (summarized below) do encompass many important factors for consideration:
(1) Service Delivery Strategies ("SDS") obligations for the daytime population and special events;
(2) SDS obligations for the resident population;
(3) SDS overlaps and/or inequities between the county and cities;
(4) Debt related to an IGA and who the debt serves - county residents, city residents or "daytime" / "special events" patrons.
(5) Who generated the tax?
(6) Duties under an IGA for either the county or the city.
(7) Property tax or other revenue overlaps and/or inequities between the county and cities.
(8) The SDS agreement between the county and each city.
However, some parties involved in these negotiations found the criteria more subjective than objective, which led to a breakdown in using the criteria for strategic negotiation.
(c) As an example of subjective criteria, negotiations often faced an obstacle because of the statute not providing a clear measure for establishing population counts.
(d) Some parties to the LOST negotiations are asking for a more frequent time period for evaluation. Some unincorporated counties and/or some cities experience rapid growth that is not reflective of the population 5 or 10 years after the negotiations.
LOST History and Judicial Review
In 2010, House Bill 991 initiated revised protocols for each county and respective city to negotiate the LOST revenue distributions, reach a legislative decision, and execute a Dept. of Revenue Certificate. If negotiations failed, HB 991 allowed (under then OCGA 48-8-89(d)(4)(D)) a Superior Court Judge to accept a "best and final offer" from each party (county vs. cities), and the judge judicially decided the most appropriate offer. Choosing between the two offers is commonly referred to as "Baseball Arbitration." After making the decision, the Judge "shall enter a final order containing a new distribution certificate and transmit a copy of it to the commissioner."
In 2013, the Georgia Supreme Court ruled in Turner County v. City of Ashburn that Baseball Arbitration violated the Separation of Powers Clause in the Georgia Constitution. Turner Co., 293 Ga. 739 at 741. In the GA Const. Art. 1, § 2, ¶ III, it states: "The legislative, judicial, and executive powers shall forever remain separate and distinct; and no person discharging the duties of one shall at the same time exercise the functions of either of the others except as herein provided."
Having previously reviewed LOST, the Court recognized the authorization for legislatively created special taxing districts to distribute funds between the county and cities, "pursuant to a negotiated agreement, throughout the district." Turner Co., 293 Ga. 739 at 740. "The negotiation feature was not found to be an unlawful delegation of legislative authority because it does not delegate the power to tax but 'merely allows the taxing authority to distribute the proceeds within its boundaries...' which is constitutionally authorized." Id. However, the Court declared that "issues relating to how tax revenues should be allocated are also left solely to legislative discretion and are not matters for determination by the courts..." Id. at 744.
Comparing LOST to municipal dissolution, the Court provided an example of how courts may decide legislative matters and enforce a legislative decision. Id. at 745-746. The municipal dissolution "statute merely delegates to the superior courts the traditional judicial function of determining the existence of facts which, if found, then [trigger] the operation of the statute." Id. at 746.
The Court held that the LOST statute did not "require a simple finding of fact, after which operation of a statute is automatically triggered or not." Id. at 747. The LOST statute required the superior court to "render a decision based on the requirements and intent of paragraph (1) of the subsection and the criteria in subsection (b) of the Code section." Id.
Judicial fact finding under that scheme did not require the superior court to limit its fact finding to "criteria set forth in the statute... Subsection (b) of the LOST Act requires the jointly submitted certificate setting forth the distribution of tax proceeds to be 'based upon, but not limited to' a list of eight criteria." Id. This methodology "calls for a subjective weighing of the identified non-exclusive criteria along with other unspecified criteria." Id.
The Court mandated that, due to the "unique nature of the joint taxing authority of the political subdivisions with the LOST special district... this determination must be a joint one... It may not be delegated to a judicial officer." Id.