Understanding Local Option Taxes
Authored by Michael Brewer, Interim County Administrator
August 12, 2011
Local option taxes are taxes that are levied on the sale of goods and services within the jurisdiction that approves such tax. There are currently three (3) types of local option sales taxes and each one is different in how it is approved and what it can be used for. The ultimate goal in a sales tax is to relieve some of the burden on property taxpayers by virtue of it being a consumption tax that everyone contributes to, regardless of whether they are a local citizen or not. The Butts County government has a significant history in the use of two of these taxes; the third is set aside strictly for the local Board of Education and is used for purposes defined by that elected body. To better understand what these taxes are used for, the following overview of each one is provided with some history of its use.
Local Option Sales Tax (LOST)-A major source of revenue for many counties, including Butts County, is the joint county and municipal local option sales tax. Subject to voter approval, a sales and use tax of 1% may be imposed on the purchase, sale, rental, storage, use or consumption of tangible personal property and related services. Proceeds from this tax are collected on behalf of the county and its qualified municipalities by the Georgia Department of Revenue and disbursed by them based on the percentages negotiated by the county government and the cities within each county. One percent of the amount collected is paid into the general fund of the State Treasury to defray the costs of administering this program and a percentage is paid to the entity that collects and reports the tax. The remainder is used as revenue for the general fund and reduces the amount of property tax revenue required to fund the annual budget. It requires that the tax bill of each property taxpayer must show the reduced county and city millage rate resulting from the receipt of sales tax revenue from the previous year as well as the reduced dollar amount. All counties and municipalities that impose a joint sales and use tax are required to renegotiate the distribution certificate for the proceeds following each decennial census. The criteria to be used in the distribution of such proceeds and for the resolution of conflicts between the county and its municipalities are set by state law and if the county and cities fail to renegotiate such certificates as required by this law, the tax then terminates. To summarize:
- The implementation of LOST is approved initially by the voters, after which is continues annually, subject to certain provisions.
- A LOST is a joint tax between the county government and its municipalities, i.e. Butts County, Jackson, Flovilla and Jenkinsburg are all partners in LOST.
- The law requires that the county governing officials enter into negotiations with the governing officials of the municipalities upon implementation of a LOST and must renegotiate the percentages each will receive every ten years following a new census. This year, local governments all over Georgia will be engaged in renegotiating the portion each will receive from LOST proceeds and these percentages and the formulas for arriving at them will vary by each jurisdiction. Factors such as population and services provided by each jurisdiction are some of what comes into play during LOST negotiations. Locally, for example, using the new census population figures and percentages of the total population of the county, Butts County has a total census population count of 23,655 and of that population, 5045 reside in Jackson (21.33%), 653 in Flovilla (2.76%) and 370 in Jenkinsburg (1.56%), leaving unincorporated Butts County with 74.35% of the population. This can serve as a beginning point for negotiation of percentages disbursed to the cities but then you have to look at services provided by the cities and those provided to the cities by the county. The county may provide certain services to a smaller city like Jenkinsburg that it doesn’t provide to Jackson because Jackson provides that service to its citizens. All of these factors have to be weighed and evaluated by the elected officials during LOST negotiations until a percentage of allocation is agreed upon by all parties.
- If a consensus is not reached by all parties in accordance with Georgia Law, then the tax terminates.
- LOST funds distributed go into the general funds of the county and the three municipalities and reduce the amount of property tax needed to fund the budgets of these governments.
- Tax bills disbursed annually must show the effect LOST has on the millage rate and the estimated dollar amount that the property taxpayer saved because of LOST.
- LOST continues so long as all conditions above are met.
Special Purpose Local Option Sales Tax (SPLOST)-A SPLOST is similar to a LOST in that it imposes a 1% sales tax on the purchase, sale, rental, storage, use or consumption of tangible personal property and related services; beyond that it is very different. The revenues from this tax must be used for capital outlays and the tax is subject to voter approval each time one is levied. This tax is collected by the Department of Revenue and disbursed to the county government and it is distinguished by virtue of being a county tax rather than a joint county-city tax-however, it may be used to fund city projects and often is used for this in counties around Georgia. As a condition of levying a SPLOST, the county must have a meeting and confer with the city officials at least 30 days before the call for the referendum in order to consider any capital projects for which the cities may seek SPLOST funds. If the county agrees to include a city project(s) in the call for referendum, the county and city must enter into an agreement before the call. SPLOST cannot typically be levied for more than five years per SPLOST; however, under certain conditions, it can be levied for six years. Prior to a SPLOST referendum, local government officials will identify specific purposes that a SPLOST will be used for. Citizen input is critical to this process and is provided by means of a SPLOST committee made up of local citizens and community leaders not affiliated with the local governments, government-appointed boards or entities that would receive direct benefit from the SPLOST. The SPLOST committee identifies projects needed by the jurisdiction and promotes, educates and informs the community about SPLOST and its potential benefits towards reducing property taxes and maintaining or increasing the quality of government services.As its name implies, Special Purpose means that a SPLOST can only be used for capital outlay projects specifically identified and named in the referendum and on the ballot when it comes up for citizen approval. These projects by law must fall into the following criteria:
- For improvements to roads, streets and bridges, including sidewalks and bicycle paths;
- Projects for the use and benefit of the entire population of the county such as a county courthouse or administration building; civic center; hospital; jail or detention center; libraries or regional solid waste handling facilities/recycling processing facilities or any combination of such projects;
- A capital outlay project to be operated by a joint authority of the county and one or more municipalities such as a water authority;
- A capital outlay project consisting of a cultural, recreational or historic facility or a facility that combines these purposes;
- The retirement of existing general obligation debt of the county, one or more of the cities or any combination thereof, subject to certain criteria;
- Public safety or airport facilities, or both, or related capital equipment used to operate such facilities such as fire engines, ambulances, airport service equipment and related;
- For obtaining capital equipment used in the conducting of official elections or referenda;
- Capital outlay projects consisting of any transportation facility designed to transport people or goods, including but not limited to railroads, port and harbor facilities, mass transit facilities or a combination of;
- For the use and benefit of the entire county and consisting of a hospital or hospital facility owned by the county or the hospital authority
- Any combination of two or more of the above projects.
To summarize SPLOST:
- It can only be used for capital outlay projects or the retirement of existing general obligation debt;
- Projects must be identified and must conform to all conditions of a SPLOST.
- It is a county SPLOST but may include city projects, subject to a written agreement by all parties;
- It can only be levied for five years typically and six under certain conditions;
- Once all terms and conditions are spelled out, the registered voters must approve it and include all capital projects on the ballot;
- Each SPLOST has a finite lifespan and must either be replaced with a new SPLOST voted on by taxpayers prior to the end of its term or it terminates.
- Local governments can sell general obligation bonds to cover immediate capital outlay project costs and use SPLOST proceeds to pay back the bonds or it can utilize the “pay-as-you-go” system or a combination of both. Bonding money allows projects to begin almost immediately after a SPLOST term beings but bears interest charges that are paid back over the course of the bond term; unbonded money is received and deposited until such time as the necessary amounts are available to begin an approved project.
- SPLOST funding pays for capital outlay projects using sales tax monies that otherwise would have to be paid for out of general funds or not funded at all.
Educational Special Purpose Local Option Sales Tax (E-SPLOST)-this is a sales tax that is structured and collected similarly to SPLOST but is imposed by the Local Board of Education with voter approval. The Board of Education has sole discretion for the calling of a referendum for an E-SPLOST vote and can only be used for the following capital outlay projects:
- Capital outlay projects for educational purposes, such as facilities and equipment, and;
- The retirement of existing school system general obligation debt incurred for capital outlay projects, with the requirement that ad valorem property taxes must be reduced by an amount equal to the proceeds applied to debt retirement.
History of Special Purpose Local Option Sales Tax in Butts County
Butts County has utilized SPLOST to fund many projects over the past two-plus decades. Based on information compiled, the following summarizes the five SPLOST programs that Butts County voters have passed and the capital outlay programs they have provided:
SPLOST I 1988-1991, was the first one to be passed in Butts County. It was approved by a referendum of the electorate of the county and its primary purpose was to capitalize the recently created Butts County Et al. Water and Sewer Authority. The impetus for creating this authority was public demand as all of rural Butts County was serviced by well-derived water. Severe drought conditions that were prevalent during the summer prior to the vote on this SPLOST helped to drive voter awareness of the need as many private wells dried up, leaving homeowners without a water source. The city of Jackson experienced water shortages that year as well as their water plant on Hickory Ridge was not in existence at that time and it was feared that if a large fire were to occur, there might not be sufficient water to combat it. These factors led to higher than normal voter turnout and overwhelming approval of SPLOST I on November 10, 1987. On April 1, 1998, General Obligation bonds in the aggregate principal amount of $4,000,000.00 were approved with a collection cap of $4,928,132.00 for servicing the debt on the bonds. 100% of all bonded monies went to the Water Authority for initial startup costs and infrastructure of the new water system. The SPLOST costs were recovered ahead of schedule and the program terminated in 1992.
SPLOST II – 1992-1996 was the first one to be passed for multiple capital improvement projects and included the next phase of development and expansion of the countywide water distribution system, creation of a facility and equipment to implement a countywide Enhanced 911 call center and construction of a multipurpose parks and recreation facility. Some funds were also used for public works infrastructure. At that time, all public safety agencies in the county and cities had their own 7-digit telephone number and no way to ascertain the location of a caller that could not speak and the drive to implement this service came from citizen demand, as was the water system expansion and the parks facility. This SPLOST passed with a high percentage and the program was continued. This SPLOST was a 5 year program and terminated on December 31, 1996
SPLOST III – 1997-2001, was designed to provide funds for capital projects in all local jurisdictions and included many programs that it was felt would benefit the public, thus helping to ensure successful passage of the referendum. For Flovilla, it included funds to purchase a fire truck and build a fire station/city hall combination building for the town. Jackson would receive funds to improve their water, sewer and electrical infrastructure, renovate the electrical administration building and city hall and obtain a municipal court building. Jenkinsburg would receive a new fire engine and improvements to their water and sewer system. The County allocated $3,190,000.00 for the Water Authority, $260,000.00 of which would now be used for sewerage treatment for the first time. The County government constructed 2 new fire stations in Stark and McKibben communities and purchased brand new fire engines to staff these stations (both of which are still being used for that purpose), as well as earmarking $1,000,000.00 for exterior renovation of the Butts County Courthouse and further additions to the Recreation Department. The County bonded $6,455,000.00. Negotiations with the municipalities yielded an agreement that Butts County, Jenkinsburg and Flovilla would receive their monies up front through the bonded money while Jackson would receive a portion of the funds up front and $1.5m more over the five-year life of the SPLOST. Voter approval came on September 17, 1996 and the program was implemented on January 1, 1997. SPLOST III terminated on December 31, 2001.
SPLOST IV 2002-2006 was an $18,500,000.00 program approved by voters on September 18, 2001 for a five-year period and began on January 1, 2002. The vote passed by 86% The projects voted on and approved by the voters was to fund further expansion of the water and sewerage system and to secure or build a new County Administration Facility to relieve severe overcrowding of many of the County agencies. Additionally, a major expansion of the Library was planned and a complete renovation of three office spaces on Third Street for use by the Superior Court Clerk’s Office. For the first time, water distribution took a backseat to sewerage treatment, with 1/3 of a $3,000,000.00 appropriation going towards water and 2/3 for sewer. Flovilla requested $400,000.00 for water system improvements, a mini-pumper fire truck and debt retirement on public works equipment. Jackson requested $1,900,000.00 for infrastructure improvements and Jenkinsburg asked for $102,000.00 for water line improvements on England Chapel road. The County received the balance for improvements to roads, streets and bridges, as well as some capital equipment purchase. The major project was the administration facility and rather than build a new one, the County elected to purchase a derelict building and rehabilitate it. SPLOST IV covered the costs of purchasing the land and building and renovating 23k square feet of interior space into offices for the Administration, Commissioners, Elections, Tax Appraisers, Tax Commissioner and Zoning departments. A significant addition to the local library was also completed from this program. SPLOST IV terminated on December 31, 2006. All projects that were undertaken came in on or under budget.
SPLOST V 2007-2012 was a $25,051,050.00, 72 month program and was approved by voters on July 18, 2006 for a six-year period and began on January 1, 2007. The proceeds for this SPLOST were estimated at $25,051,050.00, based on revenue projections prevalent in 2006 and of this amount, $17,830,000.00 would be bonded monies. Distributions to the cities and authorities included $3,000,000.00 to the Water Authority, again with a 2/3 sewer and 1/3 water allocation; $3,300,000.00 for the City of Jackson, $500,000.00 to the City of Flovilla and $350,000.00 to the City of Jenkinsburg. The remainder of the SPLOST proceeds, minus debt service on the bonds, went to County who allocated a share to the Hospital Authority for improvements to the local hospital structure. The County’s remainder was used to construct a new addition to the Butts County detention facility; to purchase replacement several vehicles, some of which were 20 years old, the renovation of the remaining 8000 square feet of space in the Administration Facility for use by the District Attorney, Development Authority, Chamber of Commerce and E-911; completion of the front of the building and rehabilitation of the entire parking lot plus several road projects. SPLOST V is currently ongoing.
SPLOST VI was voted on and approved by voters in November of 2011 for an approximate value of $21,852,000.00 and began on January 1, 2013 for a six year period. One of the major objectives of SPLOST VI was to pay off capital debt on various building projects that had been incurred over the previous 20 years with an eye towards moving debt liabilities off of property tax payers and onto sales tax. The effect of this SPLOST allowed the Board of Commissioners to reduce the County millage rate by 2.5 mils of tax; further reductions since, enabled by prudent fiscal management has brought the County millage rate to the lowest it has been since the early 1990’s. The County bonded only what was needed to pay off capital debt, which left the bulk of SPLOST available for capital improvements and this would be done on a “pay as you go” basis, meaning as the monies were collected. In addition to removing debt, SPLOST VI has been used to purchase vital equipment such as new fire engines, ambulances, law enforcement vehicles and business equipment; to pave and resurface a variety of roads and service public works infrastructure; to fund renovations and improvements to recreational facilities and other community improvement projects. It will terminate on December 31, 2018.