Georgia is one of the few remaining states that requires manufacturers to pay sales tax on electricity, natural gas and other energy they consume to produce goods.
Gov. Nathan Deal has made scrapping the energy tax on manufacturing plants one of his priorities for the 40-day session of the state Legislature. He says the tax exemption would save companies about $157 million a year, but it’s unclear how the state would make up the revenues.
In the heart of north Georgia’s “carpet capital,” Whitfield County Commission Chairman Mike Babb said he fears the state risks losing jobs by keeping the tax on the books. However, with more than half the county’s 53,500 jobs tied to manufacturing, local officials also rely on the taxes those businesses pay.
Only 14 states still tack sales tax onto the utility bills of manufacturing plants, according to the National Conference of State Legislatures. The four other Southern states that still use the tax – Alabama, Arkansas, Mississippi and Tennessee – either give reduced rates or offer exemptions for specific industries or fuel types.
Georgia manufacturers pay 4 percent sales tax to the state plus an additional amount to local governments, typically 3 percent. That means for every $1 million a plant pays in electric bills, it would typically owe $70,000 in sales taxes.
“It wouldn’t be unusual for a major manufacturer to have an annual energy cost of $2 million,” said Roy Bowen, the head of the Georgia Association of Manufacturers.
Manufacturing accounts for about 10 percent of Georgia jobs, employing 345,600 statewide. Even before the recession, manufacturing was already declining. Georgia has lost an estimated 198,000 manufacturing jobs in the past decade.
James Jarrett, the group director of manufacturing for Dalton-based Shaw Industries, said energy is easily among the company’s top five costs and is something its executives consider when deciding whether to expand in Georgia or go to one of its neighbors.
“In our case, the benefit would be in the millions” of dollars, Jarrett said, if Georgia exempted Shaw from its energy sales tax.
Homeowners and non-industrial businesses pay the same sales tax on utilities.
Industry groups have lobbied Georgia lawmakers to exempt their factories from the energy sales tax since the mid-1990s but had to settle for a temporary – and now expired – cap on their maximum tax bills passed in 2008 to offset a spike in energy prices.
The tax exemption might have a better chance this year, with Georgia showing signs of an economic recovery.
“It’s almost, as far as tax reform is concerned, the one issue that everyone agrees on,” said Senate Majority Leader Chip Rogers, R-Woodstock.
However, the specifics of Deal’s proposal to end the tax are still being hammered out, and a couple of key details remain unsettled.
First, Deal didn’t account for the revenue losses from the tax cut in his proposed budget. By law, Georgia has to have a balanced budget. Lawmakers would either have to raise taxes or make additional budget cuts.
Another unknown is whether lawmakers will try to roll back the local portion of the sales tax – typically about 43 cents of every tax dollar manufacturers pay for energy. The total cost to local governments is estimated at about $108 million per year.
Deal spokesman Brian Robinson said the administration anticipates ending only the state portion of the sales tax. A decision on the local sales tax would be left to local governments. The Georgia Association of Manufacturers and other business groups want to scrap both state and local shares.