MTHP (Committee Hearing - Aug 18th)

1

More Take Home Pay Act

Presentation to

GA House Ways & Means Committee

August 18th, 2015

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Summary Major Tax Changes

Area ChangesIndividual Income Tax rate 6% 4%

Corporate Income Tax rate 6% 5%

Income Tax base- Film Industry- Video Programming- Jobs- R&D and Investment- Manufacturing- Low Income Housing- SSOs

Sales Tax rate 4% 5%

Sales Tax base Increase base:- Communications Services Tax- Groceries- Digital downloads

Phase-out many credits, but keep some:

3

Why Move to More of a Consumption Tax? Overview

Area Issue How Addressed Reference

Jobs • Georgia has the 2nd highest top marginal tax rates in the SE for individual and corporate income tax

• In addition, our economic growth potential is limited due to our over-reliance on income tax revenues. According to a December 2012 article from the Tax Foundation:

“More and more, the consensus among experts is that taxes on corporate and personal income are particularly harmful to economic growth, with consumption and property taxes less so. This is because economic growth ultimately comes from production, innovation, and risk-taking.”

• Reduce Individual Income tax from 6% to 4% (over a 3 year phase-in period)

• Reduce Corporate Income tax from 6% to 5% (also over a 3 year phase-in period)

• Individual Income Tax Rates in SE

• Article noting Georgia’s 9th worst income tax climate

• Corporate Income Tax

Rates in SE

• Tax Foundation Special Report No. 207, page 7 under “Conclusion” section

http://taxfoundation.org/sites/default/files/docs/sr207.pdf




4



Georgia’s AAA Bond rating / Revenue Mix

• Although Georgia is one of only 15 states that is rated “AAA” by S&P, we are over-reliant on income tax revenues (both individual and corporate) as compared to our peers in this category.

• In addition, S&P noted in its June 9th, 2015 research report that although it maintains a AAA rating for Georgia’s GO bonds, it nevertheless expressed caution on pages 4 & 5 regarding the November 2014 constitutional amendment which capped income tax rates at 6%.

• Current state revenue (approx. $20.8 bil for FY 2015) relies on individual come taxes for 51% of its revenues (per GA DoR). For comparison, sales tax comprises only 28.5% of state revenues.

• Lower top marginal rates for individual and corporate income taxes

• Revenue mix of states with AAA bond rating

• Comparison of Georgia’s state revenue mix to other AAA rated states

5



Stability / Consistency of state-level revenues

• Individual income taxes have seasonal volatility, with much lower receipts each February and March.

• Corporate income taxes are the most volatile, favoring quarter end payment schedules.

• However, sales & use taxes are much more consistent over the state fiscal year

• Reduce reliance on Individual Income tax revenues

• Reduce reliance on Corporate Income tax revenues

• Increase reliance on sales & use tax revenues

• Volatility of Individual Income taxes

• Volatility of Corporate Income taxes

• Volatility of State Sales & Use taxes

6



Address loopholes in consumption tax base

• The growing sectors within our digital economy includes digitally-delivered items, streaming, text messaging, direct broadcast satellite, etc.

• Georgia’s Title 48 (Revenue code) only taxes TPP (Tangible Personal Property), not intangible items. As a result, our tax base continues to shrink/weaken.

• In addition, state exemption of groceries (a consistent, staple purchase by consumers) causes the base to be vulnerable to recessionary swings (as noted in CY 2009).

• CST Reform, as well as expanding the base to include digitally-delivered items, would create a “level-playing field” among telecommunication and software providers

• Inclusion of grocery purchases, with an exclusion for Georgia citizens aged 65 or older

• CST Reform

• Digital Goods

• Groceries

• Tax Foundation Fiscal Fact No. 212 (See page 4, in support of tax on groceries)

http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff212.pdf



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Why Move to More of a Consumption Tax? Individual Income Tax rates in SE

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Why Move to More of a Consumption Tax? Corporate Income Tax rates in SE

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Why Move to More of a Consumption Tax? Atlanta Business Chronicle article

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Why Move to More of a Consumption Tax? 2014 Revenue Mix of States with AAA bond rating (from S&P)

Source: U.S. Census Bureau, 2014 Survey of State Government Revenue

Georgia is highly reliant on income tax revenues, even as compared to other AAA rated states

0%

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30%

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60%

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100%

Virginia Georgia Missouri Utah NorthCarolina

Nebraska Maryland Iowa Delaware Indiana NorthDakota

Alaska Florida Texas Wyoming

Individual Income Corporate Income Sales & Use Property Insurance Premium

Motor Fuel Tobacco License/Fees Severance Other Taxes

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Why Move to More of a Consumption Tax? Comparison of Georgia to Other AAA rated States

Comparison to other states • The graph at left compares the average

mix of 2014 state-level revenues for AAA rated states against Georgia, both before and after proposed tax reform

• As noted in the graph, Georgia’s reliance on individual income tax revenue is significantly higher than other states

• Lowering the income tax rate and offsetting with higher sales tax could:

1. Lower the state’s top marginal income tax below the 6% constitutional maximum (issue noted by rating agencies); and, 2. More evenly balance our state revenue’s to be in line with other AAA rated states

Source: U.S. Census Bureau, 2014 Survey of State Government Revenue Note(1): Excludes Alaska, North Dakota and Wyoming (all three rely heavily on severance taxes) and Georgia

34.6%

4.9%

32.1%

48.1%

5.1%

27.5%

40.0%

4.5%

37.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Individual Income Corporate Income Sales & Use

Comparison of Revenue MixOther AAA Rated States vs Georgia

Avg of other AAA rated states(1)

Georgia (current)

Georgia (estimated, post-tax reform)

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Why Move to More of a Consumption Tax? Individual Income Tax Volatility

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200

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1,000

1,200

1,400

1,600

January February March April May June July August September October November December

$mil

Individual Income TaxMonthly Revenues 2003-2014

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Individual income tax revenues are

inconsistent, with a decline each February

Source: Historical data from GA Department of Revenue

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Why Move to More of a Consumption Tax? Corporate Income Tax Volatility

(100)

(50)

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$mil

Corporate Income TaxMonthly Revenues 2003-2014

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Corporate income tax revenues favor the

quarter-end estimated payment schedule


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Why Move to More of a Consumption Tax? Sales & Use Tax Seasonality

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$mil

State Sales & Use TaxMonthly Revenues 2003-2014

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales & Use Tax revenues are

relatively consistent


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Why Move to More of a Consumption Tax? State Revenue Volatility

$(200)

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$mil

Comparison of Revenue VolatilityMonthly Revenues 2003 - 2014

Individal Income Tax Corporate Income Tax Sales & Use Tax

Individual income tax revenues are

most volatile based on revenue size


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Why Move to More of a Consumption Tax? State Revenue Volatility

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CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 CY 2014

Stan

dard

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a %

of A

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Monthly Standard Deviation ofMajor Revenues 2003 - 2014

Individual Income Tax Corporate Income Tax Sales & Use Tax

Corporate income tax revenues are

most volatile based on percentage


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CST Reform

August 18th, 2015

18

CST Reform Overview

Industry growing, Tax revenues declining

• Even though total revenues for Georgia’s telecommunications industry increased slightly from $9.4 billion in 2010 to $9.5 billion in 2013, the state and local tax revenues over this same period actually decreased.

• State-level revenues (excluding sales taxes on network equipment) decreased by $29.6 million over this 3 year period. Total local tax revenues (excluding both network equipment sales taxes and 911 fees) decreased by $30.1 million.

• This trend is due to Georgia’s inconsistent tax law for communications services, as noted in the Special Council’s report in January 2011. Specifically, the industry revenue mix is shifting from services that are taxable (i.e. local service) to more services that are non-taxable (i.e. data).

• See following pages for further discussion.

$151.9

$110.3

$92.2

$122.3

$88.5 $83.9

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

State Sales Tax Local Sales Tax Local Fees (incl. Franchise)

$mil

State and Local Revenue decline2010 vs. 2013

2010 2013

Source: Georgia Telecom industry data aggregation, CY 2010 and CY 2013 Note: Excludes (1) sales tax revenue from network equipment purchases (to be removed from tax base under proposal), and (2) 911 fees.

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CST Reform Industry Revenue by category

Decrease in taxable services

• Under current law, Georgia only taxes local service (calling within an area code or market, i.e. Atlanta), As noted in the chart, this segment of the industry has declined substantially.

Increase in nontaxable services

• Conversely, Georgia law does not tax the following services: - Data (including text messaging and data for mobile applications, but excluding Internet access) - Intrastate calling/tolling - Interstate calling/tolling - Ancillary services (call waiting, caller ID, mail, directory assistance, etc.)

• These services, specifically data, are the growth areas within the industry. As a result, Georgia’s tax base for telecom is quickly shrinking, leading to lower revenues for both state and local.

Source: Georgia Telecom industry data aggregation, CY 2010 and CY 2013 Note: Excludes (1) sales tax revenue from network equipment purchases (to be removed from tax base under proposal), and (2) 911 fees.

TAXABLE NON-TAXABLE

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CST Reform Map of DBS Taxes in SE

Most SE states already tax DBS

• As of January 1st 2015, only Georgia, Alabama and Louisiana do not currently include DBS service in their respective consumption tax bases.

• As part of CST reform, The More Take Home Pay Act includes a proposed 7% CST over all communication services, including DBS. Interestingly enough, the average sales tax in effect in the 8 SE states that tax DBS service is 7.17%.

• See following pages for further discussion of this proposed tax in Georgia.

21

CST Reform Are we paying for a tax cut with a satellite tax?

Satellite Tax vs. Overall Tax Changes

• In total, HB 445 as proposed will provide for an income tax cut of approx. $3.8 billion annually (fully phased in).

• As part of CST reform, a 7% flat communications tax on DBS service would generate approx. $102.8 million, based on industry estimates. However, this comprises only 3% of the $3.8 billion revenue generated for the income tax cut in the proposed bill.

• On a stand-alone basis, the amount of state revenue from the satellite tax would only allow for an income tax cut from 6% to 5.95%.

• As such, the incremental revenue from DBS would be only a small part of the overall income tax reform.

Source(1): Georgia Telecom industry data aggregation, CY 2013 Source(2): HB 445 Fiscal Note, dated March 27th, 2015

$0.1 , 3%$0.1 , 3%

$3.6 , 94%

Revenue change from HB 445 (Amounts in $bil)

New revenue fromCST on DBS (1)

Other incr. revenuefrom CST reform (1)

All other revenue forincome tax cut (2)

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CST Reform Tax Revenue with CST Reform

Impact of a CST

• Implementation of a Communications Services Tax (“CST”) would bring telecom services under an equitable, unified tax structure such that state & local taxation would not be discriminatory.

• Under a 7% CST as proposed, the state would realize a potential increase of $209 million of new revenues, while simultaneously providing tax fairness within the industry.

• Local revenues would realize an increase of approximately $66 million.

Source: Georgia Telecom industry data aggregation, CY 2013 Note: Excludes 911 fees

Impact of CST Reform (7%)2013 Revenue, Tax and Fee Amounts

State tax revenue

Local tax & fee revenue

Total taxes & fees (except 911)

Current state & local revenues 161,223,935$ 201,712,815$ 362,936,750$

Proposed new rates:Telecom 3.5% 3.5% 7.0%Cable 3.5% 3.5% 7.0%Satellite 7.0% 0.0% 7.0%

Estimated revenues under a 7% CST:Telecom 233,721,879 230,382,996 464,104,875 Cable 45,944,827 45,944,827 91,889,654 Satellite 102,833,753 - 102,833,753 Vendor compensation (2%) (7,650,009) (5,526,556) (13,176,566) DoR Administrative fee (1%) (3,825,005) (2,763,278) (6,588,283)

Total Estimated Revenues under CST 371,025,445$ 268,037,988$ 639,063,434$

Potential Revenue increase from 7% CST 209,801,510$ 66,325,173$ 276,126,684$

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CST Reform Tax Revenue with CST Reform – State portion

$161.2 ($39.0)

$112.2

$45.2

$102.8 ($7.7) ($3.8) $371.0

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$100.0

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$250.0

$300.0

$350.0

$400.0

$450.0

Current Staterevenue

Network Eqpt -remove tax

Telecom -Increase base;

rate to 3.5%

Cable - Apply3.5% of CST

Satellite -Apply a 7%

CST

Vendor'sCompensation

(2%)

DOR'sAdmistrative

Fee (1%)

ProposedState revenue

- with CST

Source: Georgia Telecom industry data aggregation, CY 2013 Note: Excludes 911 fees

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CST Reform 2013 Data

GA Telecommunications Industry2013 Revenue, Tax and Fee Amounts

Industry revenues in GA

State tax revenue %

Local tax revenue %

Local fee revenue %


TELECOM SERVICESWireline - Taxable 741,459,515$ 35,185,991$ 4.7% 25,988,295$ 3.5% 14,596,523$ 2.0% 75,770,809$ Wireless - Taxable 1,831,084,370 86,331,795 4.7% 61,990,245 3.4% - 0.0% 148,322,040$ Wireline - NonTaxable 1,693,854,319 - 0.0% - 0.0% - 0.0% -$ Wireless - NonTaxable 1,919,032,576 - 0.0% - 0.0% - 0.0% -$ Prepaid Wireless 492,337,200 - 0.0% - 0.0% - 0.0% -$

TOTAL TELECOMMUNICATIONS 6,677,767,980 121,517,786 1.8% 87,978,540 1.3% 14,596,523 0.2% 224,092,849$

Video Programming - w franchise fees 1,312,709,329 734,367 0.1% 508,635 0.0% 69,316,910 5.3% 70,559,912$ Video Programming - w/o franchise fees - - - - -$

TOTAL VIDEO PROGRAMMING 1,312,709,329 734,367 0.1% 508,635 0.0% 69,316,910 5.3% 70,559,912$

DIRECT BROADCAST SATELLITE REVENUES 1,469,053,615 - 0.0% - 0.0% - 0.0% -$

TOTALS ALL SECTORS 9,459,530,924$ 122,252,153$ 1.3% 88,487,175$ 0.9% 83,913,433$ 0.9% 294,652,761$

SALES TAXES PAID ON NETWORK EQUIPMENT PURCHASES 38,971,782$ 29,312,207$ -$ 68,283,989$ 911 Fee Remitted:Prepaid Wireless 18,462,645 18,462,645 Postpaid Wireless 96,655,376 96,655,376 Landline and VOIP 47,810,802 47,810,802

TOTAL ALL TAXES AND FEES 161,223,935$ 117,799,382$ 246,842,256$ 525,865,573$

25

CST Reform 2010 Data

GA Telecommunications Industry2010 Revenue, Tax and Fee Amounts

Industry revenues in GA

State tax revenue %

Local tax revenue %

Local fee revenue %


TELECOM SERVICESWireline - Taxable 1,378,808,414$ 50,911,841$ 3.7% 37,655,631$ 2.7% 23,433,116$ 1.7% 112,000,588$ Wireless - Taxable 3,227,348,713 100,981,687 3.1% 72,663,424 2.3% 345,400 0.0% 173,990,511$ Wireline - NonTaxable 850,765,114 - 0.0% - 0.0% - 0.0% -$ Wireless - NonTaxable 1,333,465,171 - 0.0% - 0.0% - 0.0% -$

TOTAL TELECOMMUNICATIONS 6,790,387,412 151,893,528 2.2% 110,319,055 1.6% 23,778,516 0.4% 285,991,099$

Video Programming - w franchise fees 1,345,508,565 - 0.0% - 0.0% 68,415,328 5.1% 68,415,328$ Video Programming - w/o franchise fees 9,848,472 - - - -$

TOTAL VIDEO PROGRAMMING 1,355,357,037 - 0.0% - 0.0% 68,415,328 5.0% 68,415,328$

DIRECT BROADCAST SATELLITE REVENUES 1,240,582,299 - 0.0% - 0.0% - 0.0% -$

TOTALS ALL SECTORS 9,386,326,748$ 151,893,528$ 1.6% 110,319,055$ 1.2% 92,193,844$ 1.0% 354,406,427$

SALES TAXES PAID ON NETWORK EQUIPMENT PURCHASES 47,178,858$ 33,309,702$ -$ 80,488,560$ 911 Fee Remitted:Prepaid WirelessPostpaid WirelessLandline and VOIP

TOTAL ALL TAXES AND FEES 199,072,386$ 143,628,757$ 92,193,844$ 434,894,987$

(data not collected in 2010)(data not collected in 2010)(data not collected in 2010)

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Digital Goods

August 18th, 2015

27

Digital Goods Overview

Digital Goods

• Currently, the state code provides for the taxation of “tangible personal property” per O.C.G.A. – § 48 8-2, paragraph 37. As such, digitally delivered products are not included within the Georgia sales/use tax base.

• As part of larger reform, we propose including these products in the sales/use tax base, given (1) this was recommended in the Special Council for Tax Reform’s report dated January 7, 2011, and (2) tax treatment should be equitable, regardless of means of delivery (CD/DVD vs. online/download).

• Total Georgia sales/use tax revenue (at a 5% rate) from such sales would generate $115 mil in calendar year 2016, going to $137 mil in 2019.

• See following pages for further discussion by product

Source: Statista, Note: Georgia at 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at various rates and includes 15% avoidance. Excludes duplicative categories from the following pages, such as downloaded apps.

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CY 2012 CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 CY 2018 CY 2019

$mil

Potential GA tax revenues (state portion only, at 5% rate in all years)

Software Publishing Apps

E-Books Digital Video Game Content

Digital Music Revenue Digital Magazines

Digital Movie & Video

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Digital Goods Software Publishing

Description

• Comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Industry participants carry out design, programming, providing documentation, assisting in installation, and providing support services to software purchasers.

Rationale

• Equitable tax treatment, whether purchased as a tangible product or online/download.

Taxed in other states

• Yes; 28 of 45 states tax downloaded software

• These include Tennessee, Alabama, Mississippi and Texas Source: Statista, a subscription-based provider of online statistics, financial data

and survey results Note: Georgia as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at 4%, and includes 15% avoidance

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Potential GA tax revenues(state portion only, at 5% rate in all years)

Operating systems & productivity Database, storage & backup

Business analytics & enterprise software Design, editing & rendering software

Video game software publishing Security software publishing

Other

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Digital Goods Mobile Applications (“Apps”)

Description

• Comprises revenues from the sale of mobile applications, primarily for internet-capable cell phones (smartphones).

Rationale


Taxed in other states?

• Yes; 28 of 45 states tax downloaded mobile apps

• These include Tennessee, Alabama, Mississippi and Texas

Source: Statista, a subscription-based provider of online statistics, financial data and survey results Note: Georgia as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at 15% annually (previously 16-17%), and includes 15% avoidance

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Potential GA tax revenues(State portion only, at 5% rate in all years)

E-Books Games Video downloads Music downloads Other

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Digital Goods E-Books

Description

• An e-book is a book distributed and read in electronic format. Consumers visit a web site to purchase and download the digital file. This file can then be read on a computerized device such as a Kindle, iPad, smartphone, laptop computer or other device.

Rationale



• Yes; 16 of 45 states tax downloaded books


Source: Statista, a subscription-based provider of online statistics, financial data and survey results Note: Georgia as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at 8-18% annually (previously 25-45%), and includes 15% avoidance

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E-Books

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Digital Goods Digital Video Game Content

Description

• Digital video game content is the delivery of video games without the exchange or purchase of physical media.

Rationale



• Yes; at least 15 of 45 states tax downloaded video game content


Source: Statista, a subscription-based provider of online statistics, financial data and survey results Note: Georgia as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at 12-15% annually (previously 16-22%), and includes 15% avoidance

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Digital Video Game Content

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Digital Goods Digital Music

Description

• Digital music refers to non-physical sources of digital audio that use various encoding formats to store audio information. Examples include MP3 and WAV files which can downloaded from the Internet.

• Digital music can be played through downloaded files or on-line streaming to devices such as an iPad, smartphone, laptop computer, etc.

Rationale



• Yes; 16 of 45 states tax digitally-delivered music


Source: Statista, a subscription-based provider of online statistics, financial data and survey results Note: Georgia portion calculated as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at 8% annually (previously as high as 33%), and includes 15% avoidance

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Single downloads Album downloads

Subscription and streaming Ringtones /ringbacks

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Digital Goods Digital Magazines

Description


Rationale



• Yes; at least 15 of 45 states tax digital magazines


and survey results Note: Georgia portion calculated as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast growth at 8-18% annually (previously as high as 33%), and includes 15% avoidance

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Printed E-Subscriptions

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Digital Goods Digital Movie & Video distribution

Description


Rationale



• Yes; 17 of 45 states tax downloaded movies and digital video


and survey results Note: Georgia portion calculated as 3.1% of U.S. industry revenues; this percentage based population data from the 2010 census. Note: Forecast decline of -1% annually (previously a decline of -1 to -2%), and includes 15% avoidance

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$mil


Online subscription Online transactional Video on Demand Kiosk Mail Store

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Groceries

August 18th, 2015

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Groceries Overview

Groceries

• Currently Georgia does not tax groceries for the state portion (4%) of sales tax. Counties and cities still collect local sales taxes on grocery sales.

• As noted in the graph at the left, although many states exempt groceries from sales tax, state sales taxes are collected in AL, TN, and MS. Furthermore, this diagram does not include all local sales taxes collected on groceries.

• Based on grocery sales, as well as volume estimates from the Georgia Economic Modeling System, each 1% state sales tax on groceries would generate approximately $110-115 million annually.

• The proposal includes groceries in the sales tax base as part of this overall package. In addition, (1) grocery sales made though Federal Food Stamps would continue to be exempt, and (2) sales to seniors aged 65 and older would be exempt.

Source: Tax Foundation.org

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Groceries Inconsistency of Sales Tax Base

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% Y

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GA Consumer Spending vs. State Sales Tax Revenues(1)

GA Sales Tax GA Consumer Spending

Source: U.S. Bureau of Economic Analysis, GA Department of Revenue Note(1): State sales tax revenues represents only the state portion, and amounts prior to April 2013 have been reduced by 3.61% (average amount for motor vehicle sales receipts) to provide comparable results prior to TAVT implementation in 2013.

Large discrepancy likely due to grocery exemption In addition, recent disparity in the

trending likely due to (1) exemption for sales tax on energy and (2) GATE cards

Georgia’s sales tax revenues can have significant disparity to overall consumer spending in the state. As such, reform to broaden the base would likely protect state tax revenues from future declines.

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Cigarettes

August 18th, 2015

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Cigarettes Overview

Cigarettes

• Currently Georgia has a $0.37 cent excise tax per pack of cigarettes. According to the Tax Foundation, this is the 3rd lowest rate in the U.S.

• The average national cigarette excise tax is approximately $1.54 per pack (as of July 2014). Excise tax rates are as low as $0.17 in Missouri, to as much as $4.35 in New York state. The average excise tax of our 5 border states is $0.68 per pack.

• The proposal initially includes increasing the cigarette sales tax to $0.65 per pack.


40

Cigarettes Risk of Smuggling

Smuggling

• State excise tax rates can vary wide among each state. “Smuggling” occurs when consumers choose to purchase cigarettes in a low tax state and consume them in a higher tax state.

• As noted in the graph at left, smuggling occurs more frequently as the excise tax rate increases. However, at tax rates less than $1 per pack, smuggling is mostly mitigated.

Note: Positive smuggling percentages are inflow to a state; negative percentages are outflow. Source: Mackinac Center for Public Policy; Tax Foundation.

More Take Home Pay Act includes a cigarette tax of $0.65 per pack, which

in addition to an average of our neighbor states’ excise rates, also

mitigates risk of smuggling

41

Tobacco Revenue Trending/Consistency

Tobacco Revenue trending

• Total tobacco taxes (including cigarettes and non-smoking tobacco) contributed revenue of approximately $213 mil in CY 2014, or 1.16% of all state tax revenue.

• The CAGR for the 10-year period has been a decline of (1.47)%.

• Based on these averages, Georgia could expect a decline in tobacco revenues each year going forward of approximately $3 mil.

-10.0%

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

YoY

Chan

ge

$mil

State Tobacco RevenuesCY 2004-2014

Tobacco tax revenues YoY Change

Over this 10-year period, Georgia’s tobacco revenues have

experienced a CAGR of -1.47%

This amounts to only a $3 mil annual reduction, on average

Note: Includes a $12 mil upward adjustment to CY 2012 revenues (apparent misclassification between tobacco and alcohol tax revenues) Source: Historical data from GA Department of Revenue

42

Questions / Feedback

Wrap-up

43

Appendix I

Income Tax Credits for Economic Development

44

Income Tax Credits Economic Development


Credits

• Georgia currently offers income tax credits for jobs, research and development and qualified investments.

• Each of our 5 border states offer two or more of these types of credits to attract new businesses. Each state’s qualification criteria and amounts of the credits vary.

• As stated in the August 11th press release, the proposed legislation does not repeal or phase-out these credits.

45

Appendix II

Recent Tax Reform Issues In Other States

46

Kansas – Tax Reform Issues

Area Cause How Mitigated in Georgia

Downgrade of bond rating

• Moody’s recently downgraded Kansas’ bond rating from Aa1 to Aa2, noting:

Sluggish recovery compared to peers Use of non-recurring revenues to balance

their budget Revenue reductions not offset with spending

reductions Underfunded retirement system

• Little to none of these economic conditions or appropriations practices are occurring in Georgia

Shortfall in state revenues

• Estimates of their tax cut are between $500 mil - $2 bil annually (up to nearly 20% of their annual budget)

• Low income tax revenues, not due solely to rate cuts, but also the result of a slow economy and federal tax policy. Q1 2014 GDP growth in the U.S. was only 0.1%, and federal tax rates had increased for capital gains.

• We are managing the bill to be revenue neutral/very slight tax cut (despite 1st fiscal note reporting a $700 mil tax decrease)

• Both our state’s economy and tax revenues are growing

47

North Carolina – Tax Reform Issues

Area Cause How Mitigated in Georgia

Loss of various jobs/industries, despite lowering the income tax rates

• As part of their tax reform, North Carolina phased out many income tax credits, including:

Film tax credits (in favor of a grant program) Port activity credits Other jobs-related credits

• Film credits and other economic development credits are not part of the legislation.

48

Appendix III

Other Alcohol and Tobacco Taxes

49

Beer Taxes

Beer Excise Tax

• Though it has a complicated structure, Georgia’s all-in rate for beer tax at $1.01 per gallon is near the highest of other states in the SE.

• As such, the current proposal excludes adjustments to the beer tax.

50

Wine Taxes

Wine Excise Tax

• Though it has a complicated structure, Georgia’s rate for wine tax at $1.51 per gallon is near the highest of other states in the SE. Mississippi is not a comparable due to its status as a controlled state.

• As such, the current proposal excludes adjustments to the wine tax.

51

Spirits Taxes

Spirits Excise Tax

• Several SE states, including 3 of our 5 border states, are controlled states and thus difficult to use as a comparison for taxation level.

• However, Georgia’s all-in rate for spirits tax at $3.79 per gallon is near the highest of other non-controlled states in the SE.

• Although Georgia’s rate is near the lowest of the SE states, the current proposal excludes adjustments to the spirits tax.

52

Other Tobacco

State Cigars Snuff Other Smoking TobaccoAlabama $0.03 - $0.405 / 10 cigars $0.02 - 0.08 / ounce $0.02 - 0.08 / ounceGeorgia 23% wholesale price (c ) 10% wholesale price 10% wholesale priceKentucky 15% wholesale price $0.0475 / ounce 15% wholesale priceLouisiana 8 - 20% wholesale price 20 - 33% wholesale price 20 - 33% wholesale priceVirginia 10% wholesale price $0.18 / ounce 10% wholesale price

Note(c ): Georgia taxes "Little cigars" at $0.25 / ounce for every 10 cigars.

Excise Taxes on Other Tobacco

• Comparison of tax rates for other tobacco products is difficult, as rates can be based on either (1) a percentage of wholesale price or (2) an amount per ounce.

• In addition, there can be exceptions to the rates noted in the chart. For example, Florida has a 60% surtax on other tobacco products, but does not have an excise tax on cigars.

• The current proposal excludes adjustments to Other Tobacco excise taxes.

53

Appendix IV

U.S. Industry Revenue for Digitally-delivered Goods

54

Software Publishing Industry Revenue (total)

Source: Statista 2014 (US Census Bureau, 2008 to 2013)

US

Indu

stry

Rev

enue

in m

illio

ns

0

50,000

100,000

150,000

200,000

250,000

Actual2008

Actual2009

Actual2010

Actual2011

Actual2012

Actual2013

Forecast2014

Forecast2015

Forecast2016

Forecast2017

Forecast2018

Software Publishing Industry Revenue

142,717 138,981

145,425 156,806

161,744

177,216 179,031 186,236

193,441 200,645 207,850

55

Software Publishing, by category (estimated amounts for digital)

US

Indu

stry

Rev

enue

in m

illio

ns

Source: Statista 2014 (U.S. Census Bureau, 2008 to 2013) Note: Assumes: 45% of sales are tax-exempt activities, 60% of taxable sales where delivery is digital, thus no tax was collected, and 3% of revenue excluded to percent double counting of software apps.

56

Mobile Applications (“Apps”)

Source: Statista 2014 (from eMarketer, 2013)

$ 7,643

$ 8,889

$ 10,393

$ 11,952

$ 13,745

US

Indu

stry

Rev

enue

in m

illio

ns

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Actual 2013 Forecast 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019

E-books Games Video Downloads Music Downloads Other

$ 15,807

$18,178

57

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Actual2008

Actual2009

Actual2010

Actual2011

Actual2012

Actual2013

Forecast2014

Forecast2015

Forecast2016

Forecast2017

Forecast2018

Forecast2019

Printed & Audio Books E-books

E-Books U

S In

dust

ry R

even

ue in

mill

ions

Source: Statista 2014 (from United States; PwC)

$ 16,168 $ 15,917 $ 15,666 $ 15,414 $ 15,219 $ 15,364 $ 15,584 $ 15,765 $ 16,243 $ 16,507 $ 16,060 $ 15,949

58

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Actual 2011 Actual 2012 Actual 2013 Forecast2014

Forecast2015

Forecast2016

Forecast2017

Forecast2018

Forecast2019

Phyical Digital

Digital Video Game Content

Source: Statista 2014 (NPD Group, 2011 to 2013) Note: Forecast numbers for Physical video not available

US

Indu

stry

Rev

enue

in m

illio

ns

59

Digital Music

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Actual2008

Actual2009

Actual2010

Actual2011

Actual2012

Actual2013

Forecast2014

Forecast2015

Forecast2016

Forecast2017

Forecast2018

Forecast2019

Single downloads Album downloads Supscription / streaming Ringtones Music video downloads Digital kiosk sales

$ 2,759 $ 2,681

$ 3,556

$ 4,053 $ 4,362

$ 4,710 $ 5,087

$ 5,494

$ 5,934

Source: Statista 2014 (from RIAA, United States; 2008-2013)

US

Indu

stry

Rev

enue

in m

illio

ns

$ 2,689

$ 6,408

$ 6,921

60

Digital Magazine sales

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Actual 2011 Actual 2012 Actual 2013 Forecast 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019

Printed E-Subscriptions

US

Indu

stry

Rev

enue

in m

illio

ns

Source: Statista 2014 (Audit Bureau of Circulation, 200 to 2011)

61

Digital Movie & Video distribution

Source: Statista 2014

US

Indu

stry

Rev

enue

in m

illio

ns

-

200

400

600

800

1,000

1,200

Actual 2012 Actual 2013 Forecast 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019

Online subscription Online transactional

Documents

MTHP (Committee Hearing - Aug 18th)