Purpose of LOST SALES AND USE TAXATION. Local Option Sales Tax (LOST) Taxation 101 Larry Hanson City Manager City of Valdosta June 26, /16/2017

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SALES AND USE TAXATION Taxation 101 Larry Hanson City Manager City of Valdosta June 26, 2017 Local Option Sales Tax (LOST) Purpose of LOST To assist in funding governmental services authorized by the

1 SALES AND USE TAXATION Taxation 101 Larry Hanson City Manager City of Valdosta June 26, 2017 Local Option Sales Tax (LOST) Purpose of LOST To assist in funding governmental services authorized by the Constitution (Art. 9, Sec. 2, par. 3) Examples include: law enforcement; garbage and solid waste disposal; streets; parks and recreation; water, sewer and stormwater; public transit; libraries; codes; air quality control Provide property tax rollback 1

2 Introduction According to GMA and ACCG, the purpose of the LOST Act is to both provide property tax relief and to assist local governments in funding all or any portion of those services provided by the governing authorities. ACCG cites the Georgia Service Delivery Act (SDS) and states that LOST and SDS are complementary, The intent of the SDS legislation was to require local governments to take a careful look at the services they provide in ordertoidentifyoverlapsorgapsinserviceprovisionand develop a more rational approach to allocating delivery and funding of the services among the various local governments and authorities in the county. Introduction (continued) ACCG further states that, The parties to the negotiation should look for measurable criteria that have been quantified by a neutral third party. Examples may include census data, data collected by the Department of Revenue or data derived from county and city financial audits. Qualified Municipality Must impose a tax other than the LOST and Provide at least three of these services: Water Sewer Garbage Police Fire Library 2

3 8 Criteria Service delivery responsibilities of each LG to population served by the LG Service delivery responsibilities of each LG to resident population Existing service delivery responsibility of each LG Effect of change in distribution on ability of each LG to meet short and long term debt 8 Criteria Point of sale and use that generates tax Intergovernmental agreements between LGs Use by any LG of property taxes and other revenues from some taxpayers to subsidize cost of services provided to other taxpayers Any coordinated plan of county and city service delivery and financing Absent Municipalities Parties to agreement specify percentage for absent municipalities Percentage may not be less than the percentage of population compared to total municipal population and multiplied by municipal share of LOST 3

4 Rollback Required Must show a millage rate rollback on property tax bill Not required when LOST reduces millage rate to zero L.O.S.T Statute Negotiations must begin by July 1 and only 60 days is allowed for negotiation. If negotiations are unsuccessful, then the parties can pursue mediation or some form of alternative dispute resolution Negotiations must be complete and certificate signed by appropriate parties and on file with the Georgia DOR by 12/31 in the 2 nd year following the census. Key Points in Negotiations Many communities previously allocated LOST based strictly on population Any service delivery issues (SDS) settled or unsettled by House Bill 489 should be referred to in negotiations Most cities were unsuccessful in gaining tax equity in three areas: Sheriff s Department, Road Maintenance, and Jail Operations. Weighted population inappropriate 4

5 Factors to Consider Equitable distribution of LOST allows proper rollback of property taxes Parties should agree at the commencement of renegotiation how to resolve a dispute (mediation, arbitration) and who will be used for that purpose Other factors such as SPLOST referenda must be considered particularly as relates to public perception Lessons From the Trenches Many counties have not negotiated within the spirit and intent of the legislation. Common themes emerging include: Question legality of cities that do not impose property tax to receive LOST proceeds Demand concurrence that LOST proceeds can ONLY be used for property tax relief (roll back) Make demand at initial meeting for distribution Decline to participate in meaningful discussions Lessons (Continued) Use countywide population as proxy for discussion of all criteria, ignoring that many county services are provided to unincorporated area only. Use weighted scheme on ALL criteria (not just Resident population) such as Point of Sale, Population served, Tax Digest, etc. Make the statement that municipal property owners receive 2 rollbacks and unincorporated area property owners receive only 1 without stating why (pay one, get one pay two, get two) Reluctant to analyze facts or exchange information 5

6 Suggestions for Cities Municipalities should be partners Focus on the criteria Be analytical, not political Use all resources and tools available BE PREPARED! Include ALL services, not just General Fund Know their budget, audit, road mileage, revenues (particularly revenue offsets). Include services cities provide countywide Criteria 1 Measures Criteria #1 Service delivery responsibilities of each political subdivision to the population served. Population Share of Growth Daytime population during normal business hours Conventions and Trade Shows: Hotel Motel Receipts Conference Facilities Athletic Facilities Commercial and Residential Tax Digest Health Care Sales Accommodations and Food Services Manufacturing Sales Public Administration Employment Educational Employment Lowndes County Population by Jurisdiction, U.S. Census, 2010 Jurisdiction 2000 Population 2010 Population Change in Population Percent Change Lowndes Co. 92, ,233 17, % Share of Total Population Dasher % 0.83% Hahira 1,626 2,737 1, % 2.51% Lake Park % 0.67% Remerton 847 1, % 1.03% Valdosta 43,724 54,518 10, % 49.91% Incorporated 47,580 60,023 12, % 54.95% Unincorporated 44,535 49,210 4, % 45.05% 6

7 LOWNDES COUNTY AND MUNICIPALITIES: DAYTIME POPULATION, US Census 2010, US Census Center for Economic Studies, 2010 Employment Population 2010 Employed in Plus Population the Area Employment Less Employed and Living in Area Share of Daytime Population Daytime Jurisdiction Population Lowndes County 109,233 46, ,895 26, ,698 Dasher % Hahira 2, , , % Lake Park % Remerton 1, , , % Valdosta 54,518 36,062 90,580 9,684 80, % Incorporated 60,023 37,500 97,523 9,725 87, % Unincorporated 49,210 9,162 58,372 16,472 41, % Employment Sector Information According to the 2010 U.S. Census, 80.37% of all jobs in Lowndes County are located in municipalities. Listed below are the top five employment sectors in Lowndes County by occupation and location of jobs (unincorporated or incorporated): Job Class Job Count Share of Jobs Unincorporated Incorporated Retail Trade 8,420 18% 12.47% 87.53% Health Care 7,913 17% 8.42% 91.58% Accommodation 6,077 13% 19.02% 80.98% & Food Services Educational 5, % 10.98% 89.02% Services Manufacturing 3, % 24.74% 75.26% Other Related Factors Special Events: Festivals, Tournaments, Concerts, Athletic Events, Parades Tax Exempt Property Budget Data Digest Data Social Service Data Debt Obligation Business License Data 7

8 Criteria 2: Service Delivery to the Resident Population Report to the GA Department of Community Affairs, Reported by the University of Georgia, Carl Vinson Institute of Government, Tax and Expenditure Data Reports Lowndes Lake Park, Dasher Hahira Remerton Lowndes County 2009 Valdosta Municipal Combined General Government $17,255,091 $88,282 $262,170 $125,675 $243,186 $7,964,960 $8,684,273 $25,939,364 Judicial $0 Public Safety $13,850,701 $15,000 $525,893 $168,000 $653,769 $18,248,435 $19,611,097 $33,461,798 Public Works $10,530,412 $57,957 $1,116,189 $124,934 $470,339 $21,965,780 $23,735,199 $34,265,611 Health & Welfare $2,559,093 $0 $8,884 $0 $0 $0 $8,884 $2,567,977 Culture & Recreation $1,045,000 $17,583 $41,290 $4,100 $0 $536,985 $599,958 $1,644,958 Housing & Development $341,061 $4,848 $35,081 $890 $3,641 $1,231,333 $1,275,793 $1,616,854 Debt Service $9,965,588 $20,000 $52,594 $0 $60,005 $937,759 $1,070,358 $11,035,946 Other Financing Uses Total $55,546,946 $203,670 $2,042,101 $423,599 $1,430,940 $50,885,252 $54,985,562 $110,532,508 Share of Expenditures 50.25% 49.75% Criteria 3: Service Delivery of Each Local Government Criteria #3 Existing service delivery responsibilities of each political subdivision; Total service costs, unduplicated for Lowndes County and the cities Lowndes County 2010 Budget, 2010 Budgets of Municipalities, Carl Vinson Institute of Government, Tax and Expenditure Data Reports Lowndes Lake Park, All Dasher Hahira Remerton Valdosta Municipal JURISDICTIONS County 2009 Jurisdictions General Government $19,708,513 $88,282 $262,170 $125,675 $243,186 $7,964,960 $8,684,273 $28,392,786 Judicial $4,409,476 $0 $6,000 $26,000 $69,174 $355,504 $456,678 $4,866,154 Public Safety $20,185,536 $15,000 $525,893 $168,000 $653,769 $18,248,435 $19,611,097 $39,796,633 Public Works $10,530,412 $57,957 $1,116,189 $124,934 $470,339 $21,965,780 $23,735,199 $34,265,611 Health & Welfare $2,559,093 $0 $8,884 $0 $0 $0 $8,884 $2,567,977 Culture & Recreation $1,045,000 $17,583 $41,290 $4,100 $0 $536,985 $599,958 $1,644,958 Housing & Developmen $341,061 $4,848 $35,081 $890 $3,641 $1,231,333 $1,275,793 $1,616,854 Debt Service $9,965,588 $20,000 $52,594 $0 $60,005 $937,759 $1,070,358 $11,035,946 Other Financing Uses Total $68,744,679 $203,670 $2,048,101 $449,599 $1,500,114 $51,240,756 $55,442,240 $124,186,919 Share of Expenditures 55.36% 44.64% Criteria 4: Distribution Changes and Debt Obligations Criteria #4 Effect of a change in sales tax distribution on the ability of each political subdivision to meet its short term and long term debt; Review of Lowndes County debt, review of Municipalities debt Lowndes County and Municipalities, Indebtedness, 2010 Financial Reports, 2010 Revenue JURISDICTION Capital Leases Bonds / GEFA Authority Debt Notes All Debt Types Share of Debt County $11,245,000 $9,740,000 $20,985, % Dasher Hahira $88,157 $2,675,534 $2,763, % Lake Park $213,585 $213, % Remerton $210,971 $71,139 $282, % Valdosta $34,234,648 $7,180,481 $41,415, % Municipal $301,742 $37,121,153 $7,180,481 $71,139 $44,674, % All Jurisdictions $11,546,742 $46,861,153 $7,180,481 $71,139 $65,659,515 8

9 Criteria 5: Point of Sale and Use Which Generates the Tax Criteria #5 Retail trade for the unincorporated area and the municipalities All employment for the unincorporated area and the municipalities To allocate LOST revenue on a per capita basis (as opposed to a point of sale basis) penalizes cities because the centers of commerce are located primarily within the cities. Criteria 5 (Continued) U.S. CENSUS, CENTER FOR ECONOMIC STUDIES, RETAIL TRADE EMPLOYMENT BY SECTOR, 2010, VALDOSTA GA AS A SHARE OF LOWNDES COUNTY, GA Economic Census: Comprehensive data is collected by the Census Bureau s Economic Survey. JURISDICTION RETAIL TRADE EMPLOYMENT SHARE OF EMPLOYMENT County 8,420 Dasher Hahira % Lake Park % Remerton % Valdosta 7, % Incorporated 7, % Unincorporated 1, % Criteria 6: Intergovernmental Agreements Criteria #6 The existence of intergovernmental agreements among and between the political subdivisions; Existing intergovernmental agreements based on the current LOST allocation The Service Delivery Strategy is the main intergovernmental agreement between Lowndes County and the City of Valdosta. At the same time, the record of intergovernmental relations and Lowndes County demonstrates the capability to achieve efficiencies and to reduce double taxation. Examples of existing intergovernmental agreements are listed below: SDS Service Delivery Strategy Recreation Agreement SPLOST agreements approved by the voters Tax Collections Jail E911 Communications Mutual aid 9

10 Criteria 7: Tax Equity/Double Taxation Criteria #7 The use by any political subdivision of property taxes and other revenues from some taxpayers to subsidize the cost of services provided to other taxpayers of the levying subdivision; City services that benefit the entire county Double taxation Local Government Taxes, Lowndes County Georgia, 2010 Digest and Millage Rates NET M&O DIGEST County Millage County Taxes Recreation Millage Recreation Taxes Industrial Millage Industrial Taxes City Total Share of City Taxes Millage Juridictions Taxes JURISDICTION County $2,802,132, Unincorporated $1,293,647, $9,456, $1,617,059 1 $1,293,647 $12,367, % Dasher $14,426, $105, $18,033 1 $14, $175,712 $313, % Hahira $51,800, $378, $64,751 1 $51, $278,687 $773, % Lake Park $25,321, $185, $31,652 1 $25, $119,088 $361, % Remerton $20,684, $151, $25,856 1 $20, $132,113 $329, % Valdosta $1,456,728, $10,648, $1,820,911 1 $1,456, $5,990,069 $19,916, % Incorporated $1,568,962, $11,469, $1,961,203 1 $1,568,962 $6,695,670 $21,694, % Total Taxes $20,925,676 $3,578,262 $2,862,610 $6,695,670 $34,062, % Criteria 8: Service Delivery Any Coordinated City/County Plan Agreement on a LOST Allocation Certificate for Lowndes County and the Municipalities Mitigation of any Double Taxation through the LOST Allocation and /or modifications in the Service Delivery Strategy SUMMARY OF LOST MEASURES, UNINCORPORATED COUNTY, VALDOSTA AND OTHER CITIES Lowndes Municipal MEASURE County Share Population 45.05% 54.95% Daytime Population 32.31% 67.69% Population in Poverty 32.13% 67.87% Hotel Motel Tax Receipts 13.09% 86.91% Accommodations and Food Ser % 76.19% Commercial Digest 21.92% 78.08% Industrial Digest 32.48% 67.52% Manufacturing Sales 14.25% 85.75% Residential Digest 52.16% 47.84% M&O Digest 45.19% 54.81% Tax Exempt Properties 39.39% 60.61% Healthcare Employment 8.42% 91.58% Public Administration Employ % 76.44% Educational Employment 10.98% 89.02% Resident Services 50.25% 49.75% All Services 55.36% 44.64% Indebtedness 31.96% 68.04% Point of Sale, Retail Trade 32.36% 67.64% Tax Burden 36.31% 63.69% 10

11 CONCLUSIONS Negotiations should be fact based, not emotion based, and mirror the state law Previous distributions do not ensure entitlement status for future distribution Governments must address services provided vs. source of revenues Phasing in of changes in distribution can be a point of negotiation CONCLUSIONS (CON T) Changes in distribution can be dramatic over the ten year certificate life If Valdosta were to increase its distribution from 38% to 42%, this would represent an annual increase of approximately $800k and a total 10 year increase of $8 million! Sales Tax exemptions hurting collections Supreme Court decision in GMA/ACCG Task Force on LOST Special Purpose Local Option Sales Tax (SPLOST) 11

12 History Formerly a county tax administered exclusively by counties Enacted in 1985 Amended in 2004 to give city governments more participation Now technically a special district tax, not a county tax 2004 SPLOST Amendments From county tax to special district tax County still must call for tax New Definitions Level one and level two county wide projects Intergovernmental Agreement Qualified Municipality Distribution of Proceeds Length of SPLOST Expanded Use of SPLOST proceeds SPLOST Definitions Capital Outlay Project broad but does not include M&O County wide project must be for use and benefit of citizens of the entire county Level one county wide project county project to carry out functions on behalf of the state and limited to courthouse, administrative building for elected officials, jail or detention facility, health dept. facility, or a combination 12

13 SPLOST Definitions Level two county wide projects a city, county or joint county wide project other than a level one project Possible examples: roads, streets and bridges; libraries; recreation facilities; airports Intergovernmental Agreement a contract entered into by a county and a city or cities representing no less than 50% of the special district municipal population. Intergovernmental Agreement Must Include the Following: The specific capital outlay projects to be funded; The estimated dollar amounts allocated for each project from the SPLOST; The procedures for distributing proceeds to qualified municipalities; A schedule for distributing proceeds including the priority in which projects will be fully or partially funded A provision that all capital outlay projects in the agreement will be funded from the tax unless otherwise agreed; Intergovernmental Agreement Must Include the Following: A provision that proceeds from SPLOST will be maintained in separate accounts and used exclusively for the specified purposes; Record keeping and audit procedures necessary to carry out the law; and Such other provisions as the parties choose to address. 13

14 Qualified Municipality Must provide at least 3 of the following 12 services: Law enforcement Waste water treatment Recreational facilities Solid waste management Water supply or distribution or both Electric or gas utility services Qualified Municipality Service List, cont d Road and street construction or maintenance Fire protection Storm water collection & disposal Code enforcement Planning and zoning Library Distribution of SPLOST Agreement Overall Intergovernmental Agreement Between county and cities representing at least 50% of total municipal population in county Distribution determined by agreement SPLOST can be up to 6 years and be collected for entire 6 year period 14

15 Distribution of SPLOST Level One Projects Level One Project(s) Remainder distributed pursuant to Intergovernmental Agreement or Population Split Population Split is based on City s % of county wide population and proceeds are distributed by county to cities monthly SPLOST must be collected for a full 5 year period If level one project cost estimates exceed 24 months of SPLOST proceeds, SPLOST must be levied and collected for 6 years Distribution of SPLOST Level two projects Must have county wide benefit (can be city project) Can take up to 20% off the top Cannot be a level one project Cannot use in conjunction with level one Remainder of SPLOST proceeds distributed according to agreement or based on population In absence of intergovernmental agreement covering all proceeds, SPLOST is limited to 5 years Distribution of SPLOST Excess proceeds to county to pay off debt or to reduce millage rate If intergovernmental agreement, can use excess proceeds for other purposes, including municipal projects 15

16 When Does SPLOST End? If an intergovernmental agreement covers all proceeds, may be collected for entire 6 years. If level one project(s) included, must be collected for 5 years and will extend for 6 years if level one project costs exceed 24 months of proceeds. Otherwise, SPLOST can be called for up to 5 years but collections end at end of calendar quarter when revenue estimate met. What Can SPLOST Fund? Capital outlay project major, permanent, or long lived improvements or betterments, such as land and structures, such as would be properly chargeable to a capital asset account and as distinguished from current expenditures and ordinary maintenance expenses. Includes, but not limited to, roads, streets, bridges, police cars, fire trucks, ambulances, garbage trucks, and other major equipment. What Can SPLOST Fund? Roads, streets and bridges, including sidewalks, bike paths Acquisition of rights of way Renovation and improvement, including resurfacing Relocation of utilities Improvement of surface water drainage Patching, milling, widening, shoulder preparation, culvert repair and other necessary repairs 16

17 What Can SPLOST Fund? Any capital outlay project owned, operated or both either by the county, a qualified municipality within the special district, one or more local authorities within the special district, or any combination thereof Retirement of previously incurred GO debt of the county or one or more cities New debt if so stated on referendum, for specified capital projects How is a SPLOST Implemented? County gives notice of meeting to chief elected official of each qualified municipality. Notice must be delivered at least 10 days prior to date of meeting. Meeting must be held at least 30 days before call for referendum (allow 60 more days for DOJ preclearance). Legislative preference: County enters into intergovernmental agreement with qualified municipalities. Safeguard Prepare in advance of meet and confer and provide county a list of projects with estimated costs If no intergovernmental agreement, county must use projects identified by city 17

18 How is SPLOST Implemented? County adopts ordinance or resolution calling for SPLOST and forwards this to election superintendent. The ordinance or resolution must specify eligible expenditures for SPLOST proceeds, the purpose(s) for which proceeds will be used, length of SPLOST and total estimated project costs. How is SPLOST Implemented? If GO debt is to be issued, the issuing government, principal amount of debt, purpose of debt, interest rate, and principal amount to be paid each year must also be identified. Election superintendent issues call and publishes notice once a week for four weeks. Ballot question is submitted to voters. Accountability for Proceeds Proceeds must be used only for purposes specified in the resolution or ordinance. Proceeds must be kept in a separate account and not commingled with other funds. Each local government receiving proceeds must maintain a record of each and every project and include a schedule in their annual audit. 18

19 Accountability for Proceeds (Con t) Each city and county receiving SPLOST proceeds must, by December 31 of each year, publish in a newspaper of general circulation a nontechnical report showing for each project or purpose in the resolution or ordinance calling for the tax: Original estimated cost; Current estimated cost; and Amounts expended in prior years and current year. Accountability for Proceeds (Con t) If a project is under funded or behind schedule, city must also include a statement of corrective action it intends to take regarding each project that is under funded or behind schedule. Report must also include statement of any surplus funds which have not been expended for a project or purpose. Conclusion SPLOST law intends to encourage local government cooperation and provide all citizens with infrastructure and other facilities New provision for projects no longer feasible. Sales Tax exemptions hurting collections Is the SPLOST law working for your city? 19

20 General Sales Tax Issues General Sales Tax Issues General Rule: Cities are exempt from paying sales taxes Pay attention to utility bills for sales tax line item as well as other purchases Contractors Contractors must pay use tax if using personal property to fulfill contract EVEN IF city initially purchased the property If city purchases items for contractors use, must tell contractor in writing how much tax is owed or city becomes liable for tax Exception: items used for installation, repair, extension of public gas, water or sewer system if installed for general distribution purposes 20

21 Sales Taxes Owed by Cities If city sells items, must collect and remit sales tax to state Contact DOR Local Government Services Division for more information: (404) Additional Resources GMA Publication SPLOST: Building for the Future (2012) Contact: Michael McPherson, GMA ( or Contact: Department of Revenue, Local Government Services Division (404)

DISCLAIMER: This publication contains general information for the use of the members of ACCG and

DISCLAIMER: This publication contains general information for the use of the members of ACCG and SPECIAL PURPOSE LOCAL OPTION SALES TAX A GUIDE FOR COUNTY OFFICIALS Funding for the printing of this document is provided by PBS&J (www.pbsj.com). The Association County Commissioners of Georgia sincerely