MTHP (Committee Hearing - Aug 18th)

More Take
Home Pay Act

Presentation to
GA House Ways & Means
Committee
August 18th, 2015
Summary
Major Tax Changes
Area
Individual Income Tax rate
Corporate Income Tax rate
Income Tax base
Sales Tax rate

Sales Tax base
Changes
6%
6%
4%
5%
Phase-out many credits, but keep some:

- Film Industry
- Video Programming
- Jobs
- R&D and Investment
- Manufacturing
- Low Income Housing
- SSOs
4%
5%
Increase base:
- Communications Services Tax
- Groceries
- Digital downloads
Why Move to More of a Consumption Tax?

Overview
Area
Issue
Jobs
Georgia has the 2nd highest top

marginal tax rates in the SE for
individual and corporate income tax
How Addressed
In addition, our economic growth

potential is limited due to our overreliance 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)
Reference
Individual Income Tax

Rates in SE
Article noting
Georgias 9th worst
income tax climate
Corporate Income Tax

Rates in SE
Tax Foundation
Special Report No.
207, page 7 under
Conclusion section

Overview
Area
Issue
Georgias AAA
Bond rating /
Revenue Mix
Although Georgia is one of only 15 states

that is rated AAA by S&P, we are overreliant 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 Georgias 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.
How Addressed
Lower top marginal

rates for individual
and corporate
income taxes
Reference
Revenue
mix of
states with
AAA bond
rating
Comparison
of Georgias
state
revenue mix
to other
AAA rated
states

Overview
Area
Issue
How Addressed
Reference
Stability /
Consistency of
state-level
revenues
Individual income taxes have

seasonal volatility, with much
lower receipts each February and
March.
Reduce reliance on
Individual Income tax
revenues
Volatility of
Individual Income
taxes
Corporate income taxes are the

most volatile, favoring quarter end
payment schedules.
Reduce reliance on
Corporate Income tax
revenues
Volatility of
Corporate Income
taxes
However, sales & use taxes are

much more consistent over the
state fiscal year
Increase reliance on
sales & use tax
revenues
Volatility of State
Sales & Use taxes

Overview
Area
Issue
Address
loopholes in
consumption
tax base
The growing sectors within our

digital economy includes digitallydelivered items, streaming, text
messaging, direct broadcast
satellite, etc.
Georgias 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).
How Addressed
Reference
CST Reform, as well as

expanding the base to
include digitallydelivered items, would
create a level-playing
field among
telecommunication
and software
providers
CST Reform
Digital Goods
Inclusion of grocery
purchases, with an
exclusion for Georgia
citizens aged 65 or
older
Groceries
Tax Foundation
Fiscal Fact No. 212
(See page 4, in
support of tax on
groceries)

Individual Income Tax rates in SE

Corporate Income Tax rates in SE

Atlanta Business Chronicle article

2014 Revenue Mix of States with AAA bond rating (from S&P)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Virginia Georgia Missouri
Utah
North Nebraska Maryland

Carolina
Iowa
Delaware Indiana
North
Dakota
Alaska
Florida
Individual Income
Corporate Income
Sales & Use
Property
Insurance Premium
Motor Fuel
Tobacco
License/Fees
Severance
Other Taxes
Georgia is highly reliant on income tax revenues,

even as compared to other AAA rated states
Texas Wyoming
Source: U.S. Census Bureau,

2014 Survey of State
Government Revenue 10

Comparison of Georgia to Other AAA rated States
Comparison of Revenue Mix
Comparison to other states
Other AAA Rated States vs Georgia
60.0%
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, Georgias

reliance on individual income tax
revenue is significantly higher than
other states
Lowering the income tax rate and

offsetting with higher sales tax could:
48.1%
50.0%
40.0%
40.0%
37.5%
34.6%
32.1%
27.5%
30.0%
20.0%
10.0%
4.9% 5.1% 4.5%
0.0%
Individual Income
Corporate Income
Sales & Use
Avg of other AAA rated states(1)

Georgia (current)
Georgia (estimated, post-tax reform)
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
1. Lower the states top marginal income

tax below the 6% constitutional maximum
(issue noted by rating agencies); and,
2. More evenly balance our state
revenues to be in line with other AAA rated
states
11

Individual Income Tax Volatility
Monthly Revenues 2003-2014
1,600
Individual income tax

revenues are
inconsistent, with a
decline each February
1,400
1,200
$mil
1,000
800
600
400
200
January
February
2003
March
2004
April
2005
2006
May
2007
June
2008
July
2009
2010
August
September October
2011
2012
2013
November December
2014
Source: Historical data from GA Department of Revenue
12

Corporate Income Tax Volatility
Corporate income tax

revenues favor the
quarter-end estimated
payment schedule
250
200
150
$mil
100
50
January
February
March
April
May
June
July
August
September
October
November December
(50)
(100)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
13

Sales & Use Tax Seasonality
State Sales & Use Tax

700
Sales & Use Tax

revenues are
relatively consistent
600
500
$mil
400
300
200
100
January
February
2003
March
2004
April
2005
2006
May
2007
June
2008
July
2009
2010
August
2011
September
2012
October
2013
November December
2014
14

State Revenue Volatility
Comparison of Revenue Volatility

Monthly Revenues 2003 - 2014
$1,600
Individual income
tax revenues are
most volatile based
on revenue size
$1,400
$1,200
$1,000
$mil
$800
$600
$400
$200
Individal Income Tax
Sales & Use Tax
15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
$(200)
Jan-03
$-

State Revenue Volatility
Monthly Standard Deviation of

Major Revenues 2003 - 2014
Corporate income
tax revenues are
most volatile based
on percentage
Standard Deviation as a % of Average
160%
140%
120%
100%
80%
60%
40%
20%
0%
CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 CY 2014
Sales & Use Tax
16
CST Reform
August 18th, 2015
17
CST Reform
Overview
Industry growing, Tax revenues declining
State and Local Revenue decline

2010 vs. 2013
$160.0
$151.9
Even though total revenues for Georgias

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 Georgias

inconsistent tax law for communications
services, as noted in the Special Councils
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 nontaxable (i.e. data).
See following pages for further

discussion.
18
$140.0
$122.3
$120.0
$110.3
$mil
$100.0
$88.5
$92.2
$83.9
$80.0
$60.0
$40.0
$20.0
$-
State Sales Tax
Local Sales Tax

2010
Local Fees (incl. Franchise)
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.
CST Reform
Industry Revenue by category

Decrease in taxable services
TAXABLE
NON-TAXABLE
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, Georgias 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.
19
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.
20
CST Reform
Are we paying for a tax cut with a satellite tax?

Revenue change from HB 445
(Amounts in $bil)
$0.1 , 3%
$0.1 , 3%
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.
New revenue from

CST on DBS (1)
Other incr. revenue
from CST reform (1)
All other revenue for
income tax cut (2)
$3.6 , 94%
Source(1): Georgia Telecom industry data aggregation, CY 2013

Source(2): HB 445 Fiscal Note, dated March 27th, 2015
21
CST Reform
Tax Revenue with CST Reform

Impact of CST Reform (7%)
Impact of a CST
2013 Revenue, Tax and Fee Amounts
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.
State tax
revenue
Local tax & fee

revenue
Total taxes &

fees (except 911)
$ 161,223,935
$ 201,712,815
3.5%
3.5%
7.0%
3.5%
3.5%
0.0%
7.0%
7.0%
7.0%
233,721,879
45,944,827
102,833,753
(7,650,009)
(3,825,005)
230,382,996
45,944,827
(5,526,556)
(2,763,278)
464,104,875
91,889,654
102,833,753
(13,176,566)
(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
276,126,684
Current state & local revenues

Proposed new rates:
Telecom
Cable
Satellite
Estimated revenues under a 7% CST:
Telecom
Cable
Satellite
Vendor compensation (2%)
DoR Administrative fee (1%)
66,325,173
362,936,750
Source: Georgia Telecom industry data aggregation, CY 2013

Note: Excludes 911 fees
22
CST Reform
Tax Revenue with CST Reform State portion

$450.0
$102.8
$400.0
($7.7)
($3.8)
$371.0
$350.0
$300.0
$45.2
$112.2
$250.0
($39.0)
$200.0
$161.2
$150.0
$100.0
$50.0
$-
Current State Network Eqpt - Telecom Cable - Apply

revenue
remove tax Increase base; 3.5% of CST
rate to 3.5%
Satellite Vendor's
DOR's
Proposed
Apply a 7% Compensation Admistrative State revenue
CST
(2%)
Fee (1%)
- with CST
Source: Georgia Telecom industry data aggregation, CY 2013

Note: Excludes 911 fees
23
CST Reform
2013 Data
GA Telecommunications Industry
Industry revenues
in GA
TELECOM SERVICES
Wireline - Taxable
Wireless - Taxable
Wireline - NonTaxable
Wireless - NonTaxable
Prepaid Wireless
741,459,515
1,831,084,370
1,693,854,319
1,919,032,576
492,337,200
State tax
revenue
$ 35,185,991
86,331,795
-
Local tax
revenue
Local fee
revenue
Total taxes & fees

(except 911)
4.7% $ 25,988,295 3.5% $ 14,596,523 2.0% $

4.7%
61,990,245 3.4%
0.0% $
0.0%
0.0%
0.0% $
0.0%
0.0%
0.0% $
0.0%
0.0%
0.0% $
75,770,809
148,322,040
-
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

Video Programming - w/o franchise fees
1,312,709,329
-
734,367 0.1%
-
508,635 0.0%
-
69,316,910 5.3% $
$
70,559,912
-
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
TOTALS ALL SECTORS
9,459,530,924
0.0%
0.0%
0.0% $
$ 122,252,153 1.3% $ 88,487,175 0.9% $ 83,913,433 0.9% $
SALES TAXES PAID ON NETWORK EQUIPMENT PURCHASES

911 Fee Remitted:
Prepaid Wireless
Postpaid Wireless
Landline and VOIP
$ 38,971,782
TOTAL ALL TAXES AND FEES
$ 161,223,935
$ 29,312,207
18,462,645
96,655,376
47,810,802
$ 117,799,382
$ 246,842,256
294,652,761
68,283,989
18,462,645
96,655,376
47,810,802
525,865,573
24
CST Reform
2010 Data
GA Telecommunications Industry
Industry revenues
in GA
TELECOM SERVICES
Wireline - Taxable
Wireless - Taxable
Wireline - NonTaxable
Wireless - NonTaxable
1,378,808,414
3,227,348,713
850,765,114
1,333,465,171
State tax
revenue
$ 50,911,841
100,981,687
-
6,790,387,412
151,893,528 2.2%
Video Programming - w franchise fees

Video Programming - w/o franchise fees
1,345,508,565
9,848,472
0.0%
TOTAL VIDEO PROGRAMMING
1,355,357,037
DIRECT BROADCAST SATELLITE REVENUES
1,240,582,299
9,386,326,748
Local fee
revenue
Total taxes & fees

(except 911)
3.7% $ 37,655,631 2.7% $ 23,433,116 1.7% $

3.1%
72,663,424 2.3%
345,400 0.0% $
0.0%
0.0%
0.0% $
0.0%
0.0%
0.0% $
TOTAL TELECOMMUNICATIONS
TOTALS ALL SECTORS
Local tax
revenue
110,319,055 1.6%
23,778,516 0.4% $
285,991,099
0.0%
68,415,328 5.1% $
$
68,415,328
-
0.0%
0.0%
68,415,328 5.0% $
68,415,328
0.0%
0.0%
0.0% $
$ 151,893,528 1.6% $ 110,319,055 1.2% $ 92,193,844 1.0% $
SALES TAXES PAID ON NETWORK EQUIPMENT PURCHASES

911 Fee Remitted:
Prepaid Wireless
Postpaid Wireless
Landline and VOIP
$ 47,178,858
TOTAL ALL TAXES AND FEES
$ 199,072,386
112,000,588
173,990,511
-
$ 33,309,702
354,406,427
80,488,560
434,894,987
(data not collected in 2010)

$ 143,628,757
$ 92,193,844
25
Digital Goods
August 18th, 2015
26
Digital Goods
Overview
Potential GA tax revenues
(state portion only, at 5% rate in all years)

160.0
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 Reforms 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
140.0
120.0
$mil
100.0
80.0
60.0
40.0
20.0
CY 2012 CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 CY 2018 CY 2019
Software Publishing
Apps
E-Books
Digital Video Game Content
Digital Music Revenue
Digital Magazines
Digital Movie & Video

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.
27
Digital Goods
Software Publishing
Description

90.0
80.0
70.0
$mil
60.0
50.0
40.0
30.0
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
20.0
10.0
CY 2012
CY 2013
CY 2014
CY 2015
CY 2016
CY 2017
CY 2018
Operating systems & productivity
Database, storage & backup
Business analytics & enterprise software
Design, editing & rendering software
Video game software publishing
Security software publishing
CY 2019
Taxed in other states
Yes; 28 of 45 states tax downloaded

software
These include Tennessee, Alabama,

Mississippi and Texas
Other
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
Equitable tax treatment, whether

purchased as a tangible product or
online/download.
28
Digital Goods
Mobile Applications (Apps)

Description
(State portion only, at 5% rate in all years)
$mil
30.0
Comprises revenues from the sale of

mobile applications, primarily for internetcapable cell phones (smartphones).
25.0
Rationale
20.0
15.0

online/download.
Taxed in other states?
10.0
5.0
CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 CY 2018 CY 2019
E-Books
Games
Video downloads
Music downloads
Other

mobile apps


and survey results
Note: Forecast growth at 15% annually (previously 16-17%), and includes 15%
avoidance
29
Digital Goods
E-Books

14.0
Description
12.0
10.0
$mil
8.0
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
6.0
4.0
2.0

online/download.

E-Books
Yes; 16 of 45 states tax downloaded books


and survey results
Note: Forecast growth at 8-18% annually (previously 25-45%), and includes
15% avoidance
30
Digital Goods

Description
25.0
Digital video game content is the delivery

of video games without the exchange or
purchase of physical media.
Rationale
20.0
$mil
15.0
10.0

online/download.
5.0
Yes; at least 15 of 45 states tax

downloaded video game content


and survey results
Note: Forecast growth at 12-15% annually (previously 16-22%), and includes
15% avoidance
31
Digital Goods
Digital Music

10.0
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.
9.0
8.0
7.0
$mil
6.0
5.0
4.0
3.0
2.0
Rationale
1.0

Single downloads
Album downloads
Subscription and streaming
Ringtones /ringbacks

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

online/download.
Yes; 16 of 45 states tax digitally-delivered

music

32
Digital Goods
Digital Magazines
Description

9.0
8.0
7.0
6.0
5.0

other device.
4.0
Rationale
3.0
2.0
1.0
Printed
E-Subscriptions

and survey results
Note: Forecast growth at 8-18% annually (previously as high as 33%), and

online/download.
Yes; at least 15 of 45 states tax digital

magazines

33
Digital Goods
Digital Movie & Video distribution

Description
3.0
2.5
$mil
2.0
1.5

other device.
Rationale
1.0
0.5
Online subscription
Online transactional
Video on Demand
Kiosk
Mail

and survey results
Note: Forecast decline of -1% annually (previously a decline of -1 to -2%), and
Store

online/download.

movies and digital video

34
Groceries
August 18th, 2015
35
Groceries
Overview
Groceries
Source: Tax Foundation.org
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.
36
Groceries
Inconsistency of Sales Tax Base

Georgias sales tax revenues
can have significant disparity
to overall consumer
spending in the state.
GA Consumer Spending vs.

State Sales Tax Revenues(1)
10.0%
5.0%
% YOY change
0.0%
CY 2008
CY 2009
CY 2010
CY 2011
CY 2012
CY 2013
-5.0%
-10.0%
Large discrepancy
likely due to
grocery exemption
-15.0%
-20.0%
GA Sales Tax
GA Consumer Spending
As such, reform to broaden

the base would likely protect
state tax revenues from
future declines.
In addition, recent disparity in the
trending likely due to (1)
exemption for sales tax on energy
and (2) GATE cards
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.
37
Cigarettes
August 18th, 2015
38
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.
39
Cigarettes
Risk of Smuggling
Smuggling
Note: Positive smuggling percentages are inflow to a state; negative percentages are outflow.
Source: Mackinac Center for Public Policy; Tax Foundation.
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.
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
40
Tobacco Revenue
Trending/Consistency
Tobacco Revenue trending
State Tobacco Revenues

CY 2004-2014
300.0
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.
12.0%
10.0%
250.0
8.0%
$mil
4.0%
2.0%
150.0
0.0%
-2.0%
100.0
-4.0%
-6.0%
50.0
-8.0%
-
-10.0%
2004
2005
2006
2007
2008
2009
Tobacco tax revenues
2010
2011
2012
2013
YoY Change
6.0%
200.0
2014
YoY Change
Note: Includes a $12 mil upward adjustment to CY 2012 revenues (apparent

misclassification between tobacco and alcohol tax revenues)
Over this 10-year period,

Georgias tobacco revenues have
experienced a CAGR of -1.47%
This amounts to only a $3 mil
annual reduction, on average
41
Wrap-up
Questions /
Feedback
42
Appendix I
Income Tax Credits for

Economic Development
43
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 states
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.
44
Appendix II
Recent Tax Reform Issues

In Other States
45
Kansas Tax Reform Issues

Area
Cause
Downgrade of bond
rating
Moodys recently downgraded Kansas

bond rating from Aa1 to Aa2, noting:
Little to none of these economic

conditions or appropriations
practices are occurring in Georgia
Estimates of their tax cut are between

$500 mil - $2 bil annually (up to nearly
20% of their annual budget)
We are managing the bill to be

revenue neutral/very slight tax cut
(despite 1st fiscal note reporting a
$700 mil tax decrease)
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.
Both our states economy and tax

revenues are growing
Shortfall in state
revenues
How Mitigated in Georgia
Sluggish recovery compared to peers

Use of non-recurring revenues to balance
their budget
Revenue reductions not offset with spending
reductions
Underfunded retirement system
46
North Carolina Tax Reform Issues

Area
Cause
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
How Mitigated in Georgia
Film credits and other economic

development credits are not part of
the legislation.
47
Appendix III
Other Alcohol and

Tobacco Taxes
48
Beer Taxes
Beer Excise Tax
Though it has a complicated structure,

Georgias 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.
49
Wine Taxes
Wine Excise Tax
Though it has a complicated structure,

Georgias 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.
50
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, Georgias all-in rate for spirits

tax at $3.79 per gallon is near the
highest of other non-controlled states
in the SE.
Although Georgias rate is near the

lowest of the SE states, the current
proposal excludes adjustments to the
spirits tax.
51
Other Tobacco
Excise Taxes on Other Tobacco
State
Alabama
Georgia
Kentucky
Louisiana
Virginia
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.
Cigars
Snuff
Other Smoking Tobacco
$0.03 - $0.405 / 10 cigars

23% wholesale price (c )
15% wholesale price
8 - 20% wholesale price
10% wholesale price
$0.02 - 0.08 / ounce

10% wholesale price
$0.0475 / ounce
$0.18 / ounce
$0.02 - 0.08 / ounce

10% wholesale price
15% wholesale price
10% wholesale price
Note(c ): Georgia taxes "Little cigars" at $0.25 / ounce for every 10 cigars.
52
Appendix IV
U.S. Industry Revenue for

Digitally-delivered Goods
53
Software Publishing Industry Revenue (total)

Software Publishing Industry Revenue
US Industry Revenue in millions
250,000
207,850
193,441
200,000
200,645
186,236
156,806
150,000
177,216
179,031
Actual
2013
Forecast
2014
161,744
145,425
142,717
138,981
100,000
50,000
0
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Source: Statista 2014 (US Census Bureau, 2008 to 2013)
54
Software Publishing, by category

(estimated amounts for digital)
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.
55
Mobile Applications (Apps)

20,000
$18,178
18,000
$ 15,807
16,000
14,000
$ 13,745
$ 11,952
12,000
$ 10,393
10,000
8,000
$ 8,889
$ 7,643
6,000
4,000
2,000
0
Actual 2013
Forecast 2014
E-books
Forecast 2015
Games
Forecast 2016
Video Downloads
Forecast 2017
Music Downloads
Forecast 2018
Forecast 2019
Other
Source: Statista 2014 (from eMarketer, 2013)
56
E-Books
18,000
16,000
$ 16,168
$ 15,917
$ 15,666
$ 15,414
$ 15,219
$ 15,364
$ 15,584
$ 15,765
$ 15,949
$ 16,060
$ 16,243
$ 16,507
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Printed & Audio Books
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
E-books
Source: Statista 2014 (from United States; PwC)
57

18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Actual 2011 Actual 2012 Actual 2013
Forecast
2014
Forecast
2015
Phyical
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Digital
Source: Statista 2014 (NPD Group, 2011 to 2013)

Note: Forecast numbers for Physical video not available
58
Digital Music
8,000
$ 6,921
7,000
$ 6,408
$ 5,934
6,000
$ 5,494
$ 5,087
5,000
$ 4,710
$ 4,362
$ 4,053
4,000
3,000
$ 3,556
$ 2,689
$ 2,759
$ 2,681
Actual
2008
Actual
2009
Actual
2010
2,000
1,000
0
Single downloads
Actual
2011
Album downloads
Actual
2012
Actual
2013
Forecast
2014
Supscription / streaming
Forecast
2015
Ringtones
Forecast
2016
Forecast
2017
Music video downloads
Forecast
2018
Forecast
2019
Digital kiosk sales
Source: Statista 2014 (from RIAA, United States; 2008-2013)
59
Digital Magazine sales

7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Actual 2011
Actual 2012
Actual 2013 Forecast 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019
Printed
E-Subscriptions
Source: Statista 2014 (Audit Bureau of Circulation, 200 to 2011)
60
Digital Movie & Video distribution

1,200
1,000
800
600
400
200
Actual 2012
Actual 2013
Forecast 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019
Online subscription
Online transactional
Source: Statista 2014
61

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More Take

Home Pay Act

Sales Tax rate

Phase-out many credits, but keep some:

Why Move to More of a Consumption Tax?

Georgia has the 2nd highest top

In addition, our economic growth

More and more, the consensus among

Individual Income Tax

Corporate Income Tax

Why Move to More of a Consumption Tax?

Although Georgia is one of only 15 states

In addition, S&P noted in its June 9th, 2015

Current state revenue (approx. $20.8 bil for

Lower top marginal

Why Move to More of a Consumption Tax?

Individual income taxes have

Corporate income taxes are the

However, sales & use taxes are

Why Move to More of a Consumption Tax?

The growing sectors within our

Georgias Title 48 (Revenue code)

In addition, state exemption of

CST Reform, as well as

Why Move to More of a Consumption Tax?

Why Move to More of a Consumption Tax?

Why Move to More of a Consumption Tax?

Why Move to More of a Consumption Tax?

North Nebraska Maryland

Sales & Use

Georgia is highly reliant on income tax revenues,

Source: U.S. Census Bureau,

Why Move to More of a Consumption Tax?

Comparison of Revenue Mix

Comparison to other states

Other AAA Rated States vs Georgia

The graph at left compares the average

As noted in the graph, Georgias

Lowering the income tax rate and

4.9% 5.1% 4.5%

Sales & Use

Avg of other AAA rated states(1)

1. Lower the states top marginal income

Why Move to More of a Consumption Tax?

Individual income tax

Source: Historical data from GA Department of Revenue

Why Move to More of a Consumption Tax?

Corporate income tax

Source: Historical data from GA Department of Revenue

Why Move to More of a Consumption Tax?

State Sales & Use Tax

Sales & Use Tax

Source: Historical data from GA Department of Revenue

Why Move to More of a Consumption Tax?

Comparison of Revenue Volatility

Individal Income Tax

Corporate Income Tax

Sales & Use Tax

Source: Historical data from GA Department of Revenue