Energy tax exemption could prove costly to Augusta

A new state sales tax exemption for energy used in manufacturing will cost Augusta $4 million over the next four years, according to a conservative estimate, and industry leaders are urging the city not to levy a replacement excise tax.

 

House Bill 386, which created the exemption, also stands to do a number on the city’s tax digest, potentially triggering a tax rate adjustment, and will force an overhaul in the county tag office because ad valorem car taxes will not be levied on vehicles purchased after the law takes effect.

Approval of the energy sales tax exemption was pushed by chambers of commerce, including the Augusta Metro chamber, for “many, many years,” and all were delighted when the Legislature approved the exemption last spring, Augusta chamber President Sue Parr said during a city budget work session with the Augusta Commission on Thursday.

Though the bill gave cities and counties the option of replacing lost revenue with a new excise tax, a move urged by the Georgia Municipal Association, Parr urged the commission to “use extreme caution” with regard to the excise tax.

Nearly half of the city’s 25 largest property taxpayers are manufacturers, making the replacement excise tax unfairly “punitive” and potentially sending companies to counties that don’t have the tax, Parr contended.

Declining to levy the excise tax also would allow the city’s sales tax base “to grow organically” over the next few years, she said, adding that the commission could incorporate new taxes on Internet sales that went into effect last week.

Walter Sprouse, the executive director of the Development Authority of Richmond County, agreed that the excise tax was a bad idea. Sprouse said he hadn’t had a discussion with a prospect in 20 years that didn’t include potential incentives.

“How competitive do you want us to be?” he said.

“Augusta has been unusual in that we still have a strong manufacturing base,” Mayor Deke Copenhaver said, and the city continues to attract industry, such as Rockwood Pigment and an incoming Starbucks soluble products plant.

Also speaking against the excise tax was David Leach, the vice president of finance at DSM Chemicals, who said the company was happy the bill passed. DSM pays $3 million to $4 million in annual energy sales taxes, he said.

Jay Backus, the general manager at Resolute Forest Products, formerly Augusta Newsprint, said the plant, which employs 330, remains competitive despite the industry’s decline and idling of half the plant’s 62 machines over the past four years.

City Administrator Fred Russell said the lost revenue won’t be fun for a city that has been “managing fairly thinly” over the past few years. Russell, who calculated the $4 million impact as the exemption is phased in over four years, said he wasn’t quite ready to levy the excise tax, though. The decision would be made by a commission vote.

Commissioner Jerry Brigham called attention to another unexpected impact of House Bill 386. The exemption’s reduction on the local option portion of the tax digest might shift the burden to homeowners, who will see an increase unless the city lowers the tax rate.

The state continues to examine how the reduction is to be handled, Russell said, although Augusta will have to approve a budget before the Legislature convenes in January and potentially changes or refines application of the bill.

Tax Commissioner Steven Kendrick said House Bill 386 also affects annual ad valorem taxes on automobiles, which car owners pay when they renew their tags. On vehicles purchased after Jan. 1, the annual charge will be replaced with a one-time 6.5 percent sales tax paid on a vehicle’s fair market value, not its bill of sale, he said.

“That’s going to cause a lot of grief,” Kendrick said. The “state came here to tell us they don’t have a lot of answers.”

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