Every government must have money to operate, and state governments are no exception. If there is to be a public school system with teachers, buildings, and textbooks; if there are to be roads connecting the major cities of the state; if there are to be parks and protected wilderness areas, then state government must have money to pay for those services.
The money that a government takes in is called revenue. The state of Georgia has a number of revenue sources, including several forms of taxes, fees, and lottery funds. Between 2008 and 2012, the total amount of state revenue averaged more than $16 billion each year. The creation of the various revenue sources and the terms for collecting revenue are determined by the legislative action of the Georgia General Assembly. The Department of Revenue, a state executive agency, administers and collects most of the state’s revenues. The governor, as the state’s budget director, is also heavily involved in revenue decisions.
The state of Georgia is required by its constitution to maintain a balanced budget, meaning that the government cannot spend more money than is available through revenues and funds saved from previous years. When revenue levels change, so does the budget, as do the programs and services provided by the state government for its citizens. Thus, the success or failure of the state’s revenue-raising efforts directly affects the amount and quality of services offered to the people of Georgia.
Georgia Tax Sources
Taxes are the most visible form of government revenue. A tax is a mandatory payment made by individuals, families, or businesses to the government. Taxes are levied on income, property, and most purchased items. Different kinds of taxes are often referred to by the base, or source, of the tax. Income, property, and retail sales are major examples of tax sources or tax bases. Most state-levied taxes are paid as a percentage of the value of the tax base (such as 4 percent of the cost of an item bought at a store or 6 percent of a person’s taxable income). Typically, taxes are deposited into a general fund or account, out of which many different government services are funded.
The individual income tax is a graduated tax (i.e., a tax with rates that rise as taxable income increases) on a portion of the income a person or a married couple earns in salaries, wages, or investments. State income-tax rates in 2014 ranged from 1 percent for a married couple whose taxable income is less than $1,000 annually to 6 percent, plus $340, for a married couple whose taxable income is greater than $10,000. The individual income tax is Georgia’s top revenue source, generating between 40 and 45 percent of the state’s total revenue.
The corporate income tax is a flat tax (6 percent since 1969) on the income that a corporation generates within Georgia. Companies are not taxed on income generated outside the state. This tax is typically Georgia’s fourth- or fifth-largest revenue source and accounts for 3 to 5 percent of the state’s total revenue.
The insurance premium tax is placed on insurance companies operating in Georgia and generates about 2 percent of Georgia’s annual revenues. The tax rate varies, with companies that conduct most of their business outside Georgia paying a higher rate than those companies that are more heavily dependent on Georgia business. Because of this tax, insurance companies are not subject to Georgia’s corporation income tax.
The general sales tax (or “sales and use tax”) is placed on customer purchases of most items bought at retail stores. The sales tax is a percentage of the price of an item. Georgia has a 4 percent sales tax rate, but because local governments are allowed to add on optional sales taxes, customers may pay up to 7 or 8 percent on retail sales. The state revenue department collects all of the sales-tax revenue and returns the local portion to the appropriate counties, cities, and school systems. Some retail items, especially most food products, have been exempted from the state sales tax. Before exemptions for food items were enacted, the sales tax was the leading tax source in Georgia; now, it is second, usually generating about 30 percent of the state’s revenues.
The property tax, while one of the major sources of revenue for local governments, generates only a small portion (less than 1 percent) of the state government’s funds. County and city governments administer and collect property taxes, and in doing so, they add on a small state property tax (1/4 of a mill, or 0.25 percent), which is forwarded to the state. The state revenue department provides some supervision of local government property-tax administration to ensure a degree of uniformity from county to county.
Excise taxes are special taxes placed on the purchase of such items as gasoline, alcoholic beverages, and tobacco products. Excise taxes are usually fixed amounts per item, rather than percentages of the price. For example, Georgia’s motor fuel, or gasoline, excise tax in 2014 was 7.5 cents per gallon of gas, regardless of the pump price per gallon; the excise tax on a package of cigarettes was 37 cents, regardless of the price of the package. The motor-fuel tax was the largest excise tax, contributing about 4 to 5 percent of state revenues. The Georgia constitution specifies that the state must spend whatever amount is raised by the motor-fuel tax on roads and bridges. The excise taxes on alcoholic beverages and tobacco products together make up between 1 and 2 percent of state revenues; these dollars go into the state’s general fund.
The estate or inheritance tax is tied closely to the federal government’s estate tax, which is payable from the estate of deceased persons. With changes in federal law, receipts from this tax (sometimes called the “death tax”) have decreased recently and make up less than 1 percent of state revenues.
The state government charges fees for various services, such as entry fees into state parks, which are maintained by the state. The government also collects fees for licenses, which are permits granted by the government after the payment of a fee so that an individual can practice an occupation or take part in a certain activity, like hunting, fishing, or driving a car. Licenses can be called regulatory fees in that, by issuing the permit, the government also regulates to some degree the occupation or the activity. Whereas taxes are mandatory, fees and licenses are to some extent voluntary. All regulatory fees combined amount to 3 to 4 percent of state revenues.
The major nontax revenue in Georgia is the state lottery. With all of its various games, the lottery has on average contributed (subtracting costs from the total proceeds) more than $700 million annually since the year 2000. The lottery is the state’s third-largest revenue source, averaging 5 percent of total state funds each year. By law, lottery funds can be spent only for special programs, including the HOPE Scholarship for college and technical-school students, pre-kindergarten programs, and educational technology.
Georgia, along with several other states, has participated in the tobacco-settlement-funds program since 1998. Through this program five large tobacco-manufacturing companies make annual payments to states to cover the costs borne by state governments in dealing with cigarette smoking–related health-care problems. Georgia’s share of the tobacco payments has averaged more than $170 million annually since 2000 and has amounted to more than 1 percent of the state’s total revenues.
Georgia also maintains an indigent-care trust fund, which is composed of payments from hospitals around the state. This trust fund, in conjunction with federal Medicaid funds, helps those same hospitals cover some of the costs of providing health care to the poor. This fund has averaged about 1 percent of state revenues.