Today, the Council, which was created by HB 1405, met for its initial meeting to discuss a potential overhaul of Georgia's tax structure.  This Council, known as the "Special Council on Tax Reform and Fairness for Georgians," was spearheaded by Rep. Larry O'Neal (R-Bonaire) and the lawyer for Governor Perdue.  The findings of this Council are to be made known to the Lt. Governor and Speaker of the House no later than January 10, 2011.  Once that set of recommendations is made, those will be shared with the Special Joint Committee on Georgia Revenue Structure during the 2011 legislative Session.  That group will then introduce a bill or a series of bills in the House of Representatives which will incorporate the recommendations (which will not be changed from what this Council proposes).

At today's meeting, Rep. O'Neal kicked off the discussions, noting that Georgia has 119 sales and use tax exemptions now in statute.  However, there are no quantifiable criteria on the sales and use tax exemptions, meaning does Georgia get its "bang for the buck" by allowing these exemptions?  Rep. O'Neal likened these exemptions to "preferred appropriations."  Thus, those are among the many items in Georgia's tax laws that this Council will undertake to review.

Speaker of the House David Ralston (R-Blue Ridge) and Lt. Governor Casey Cagle (R-Gainesville) also were in attendance with both commending the other for their partnering abilities on this endeavor. Speaker Ralston noted that it was Rep. O'Neal who took leadership on the issue and Majority Leader Jerry Keen (R-St. Simons) spoke passionately about the need to look at Georgia's tax structure.  Lt. Governor Cagle commended the efforts to get this Council formed made by Sen. Bill Cowsert (R-Athens), Sen. Ronnie Chance (R-Tyrone), Sen. Tommie Williams (R-Lyons), and Sen. Chip Rogers (R-Woodstock).  Both gentlemen spoke of the need to create jobs in Georgia.   Lt. Governor Cagle stated that Georgia's current tax code is arcane and outdated needing to be streamlined and fairer for all.  He also noted that it was necessary for Georgia to retain its "AAA" bond rating.

Governor Sonny Perdue, who was on hand for this first meeting, quipped in his opening remarks that his service on this Council was just another example of where he was a "victim of legislative action."  Governor Perdue stated that it would take courage to make changes to Georgia's tax structure but he believes that this Council can do a fact-based analysis and make those recommendations.  He did acknowledge that the changes may not be politically palatable.

Members of this Council are:

• Governor Sonny Perdue
• Brad Dickson, CPA
• Roy Fickling
• Jeff Humphreys, Ph.D. (UGA)
• A.D. Frazier (Affiance LLC)
• Skeeter McCorkle (McCorkle Nurseries)
• Christine Ries, Ph.D. (Georgia Tech)
• Suzanne Sitherwood (CEO of AGL and Georgia Chamber of Commerce 2010 Chair)
• David Sjoquist, Ph.D. (GSU)
• Roger Tutterow, Ph.D. (Mercer University)

A.D. Frazier was selected to Chair this Council although it will use an outside facilitator to keep it on task.

Mr. Frazier made some opening remarks concerning "ground rules" for the Council.  He did mention that the last study of Georgia's tax laws was done in 1980; there is a 117-page report which is to be made available to Council members.  Some of the ground rules to guide this group included:

• Remain open and maintain minutes of meetings and discussions
• Host fact-finding sessions across the State
• Remain open to the press – but noted that Council members making remarks to the press would be doing so in their own capacity and providing their own opinion and the not the opinion of the Council (they were also cautioned not to speculate on any outcome)
• Permit Legislators and lobbyists to make comments with their comments being made public (including if those individuals contact the Council individually) and observations and comments will be consolidated and placed on the internet website
• Funnel questions and issues through the Council's Chair
• Contact staff member Donna Moore for assistance and for sending questions (770-414-6507 or email address is compasspmc@bellsouth.net )
• Pose questions to the Council in writing and in advance of any meeting
• Utilize the website for this group http://fiscalresearch.gsu.edu/taxreform/ 

Dr. Carolyn Bordeaux gave an overview of Georgia's Tax Revenue Portfolio.  She opened with the "Principles for Evaluating a Tax System" providing the standard guiding principles used including whether a tax was adequate; fair; distorted; and had ease of administration.

For revenue "adequacy," the Council needs to consider whether the tax is necessary and whether it will "grow the economy."  They must also consider whether the taxes are sufficient to provide the services (at the desired level). This standard also takes into account whether the tax fluctuates with the economy.

For "equity," the Council will need to look at the benefit and who contributes to the tax in relation to the benefit received.  They need to look at taxpayers' ability to pay – whether the tax is regressive or proportionate.  They will also look for "horizontal equity" to determine if taxpayers contribute the same amounts (such as property tax assessments for neighboring properties).

The third standard, "effect on taxpayers" will look at whether any distortion is imposed (taxes should alter individuals and businesses' behavior as little as possible).  Under this standard, it will need to assess whether the tax is efficient and whether it promotes economic development.

Finally, the last standard in assessing a tax is to look at "ease of administration."  Is it easy for the regulators to collect?  Is it easy for taxpayers to remit?

Georgia's current tax system is heavily dependent upon personal income tax revenues and sales tax revenues.  Since 2009, Georgia has seen a ten percent decline in collections of each of these tax sources.

Dr. Bordeaux remarked that with the drop of personal income tax percentage there has been a loss of $900 million to $1 billion.

Tobacco taxes, which are a part of "other" taxes collected in Georgia, trended downward between 1985 to 2001; those taxes began to rise at that point until 2005 at which point they began to decline again.

When looking at State taxes to be imposed, the Council needs to take into account the effect on local government taxation and that tax burden.  Businesses considering whether to locate in Georgia consider those taxes as well.

Georgia does have a balanced tax system now in terms of types of taxes collected. 

It is 34^th in the nation in terms of State and local tax revenue per capita.  Georgia is 25^th in the nation in terms of income tax per capita.  Southeastern states, though, rely more on sales taxes.  Seven states do not have income taxes.  Georgia's six income tax brackets were first established in 1931 and have not been updated since that time and inflation has eroded those. 

Dr. Bordeaux explained to the Council that Virginia and North Carolina were similar states to Georgia even though Virginia was wealthier.  Georgia's capital gains make its income tax more volatile.  Exemptions also impact Georgia's income tax.

In sales taxes, Georgia is 18^th in the nation per capita.  Looking at state sales tax versus local sales tax, Georgia is 34^th in per capita for state sales tax but it is 6^th in per capita for local sales tax.  Sixteen states have no local sales taxes imposed and five states have no sales taxes.  Georgia also taxes 36 services with sales taxes.  Georgia has a four percent State sales tax rate.

Dr. Bordeaux mentioned that the Council should consider business to business purchases.  There was a 1999 study on that type of taxation.

Corporate income taxes have Georgia ranked 40^th in the nation per capita.  This is $107 per person and it is 18 percent below the southeastern average.  However, corporate income tax is declining.  The decline, in part, is because corporations are now filing as S corporations or as limited liability companies.  They also are receiving credits and exemptions.

Georgia is 47^th in the nation in collection of "other" taxes (such as cigarette taxes and motor fuel).  Gasoline taxes in Georgia are the 46^th highest in the nation and the cigarette tax is the 48^th highest.

Business climate measures should be reviewed. The Tax Foundation shows that Georgia is 29^th which means it is less business friendly.  The Council on State Taxation, however, ranks Georgia at 40^th, which means it is in the top 10 ranking (and it is looking at exemptions and other credits).

Georgia's income tax is regressive and that is a function of proportionality and equity.

Dr. Ries inquired if other states were making reforms and what direction those reforms were taking.  Dr. Sjoquist explained that California had made a recommended overhaul but those reforms were rejected by the voters.  Also, a part of Rhode Island's tax laws have been revamped.

Mr. Harkins asked about Georgia's compliance with respect to remitting and paying taxes.  The Department of Revenue will need to address that issue, but Dr. Bordeaux remarked that there was $100 million that could actually be "found."

Another question was raised relating to the sales tax decline – was that an indicator of the economy or another reason?  It is in part due to loss of sales to the internet and "ship to services" according to Dr. Bordeaux.

Rep. Stacey Abrams (D-Atlanta) asked a few questions for the Council to consider; her questions will be submitted in writing.  They related to per capita issues for counties and demographics; research on the state-to-state loss of jobs because of taxation; and revenues in relation to allocation of services.

John Heavener, with the Georgia Retailers Association, asked that the Council consider requiring fiscal notes, on financial proposals submitted in the legislative process, be required to have a "dynamic" review.  Florida recently passed a law requiring such.

A representative from Americans for Prosperity asked about Texas's success with its tax system.  It also has $800 million in reserves and has more Fortune 500 companies located within its borders than any other state.

There were no announcements made regarding when the next meeting(s) would be held or when any forums would be scheduled around the State.  Everyone was referred to the website noted above.