Revenue Losses from Exemptions of Goods from the Georgia Sales and Use Tax

• FRC Report 134 Version
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• September 1, 2006 Create Date
• February 12, 2020 Last Updated

FRC Report 134, September 01, 2006, William J. Smith, Mary Beth Walker

The general sales tax is an important revenue source for the state of Georgia. In terms of size, the sales tax accounted for $5.2 billion in fiscal year 2005 (or 34.3 percent of the total state government tax revenue). It is the second largest single source of state tax revenue behind the state personal income tax, and is larger than the sum of the next 6 major taxes combined.

Georgia’s sales tax applies “…to the retail purchase, retail sale, rental, storage, use, and consumption of tangible personal property and the services described…” The law means that all tangible goods sold at retail are taxed unless specifically exempted, and that all services are not subject to the sales tax, unless specifically included in the sales tax base by law. This report provides estimates of the loss of state sales tax revenues from each specific exemption.

Exemptions are typically granted for reasons of equity, fairness, charity and or for economic development purposes. A sales tax is generally regressive because individuals with lower income typically spend more of their income on taxable items, thus, a larger proportion of their income is expended on sales tax than individuals at higher income levels. For this reason, exempting food for home consumption was primarily adopted to make the sales tax less regressive. The sales taxation of certain goods, such as prescription drugs, medical devices is generally viewed as unfair, because it is increasing the costs to individuals who are either in particular need or already suffering.

Non-profit organizations like hospitals, national charities and universities are also typically beneficiaries of sales tax exemptions. Purchases made by non-profits are exempted from state sales tax because these non-profits engage in activities that has non-market social value. The exemption allows these organizations to use more of their donations or revenues for the organization’s stated goal.

Finally, sales tax exemptions are sometimes granted to specific industries that the state is attempting to cultivate, attract, or support. In Georgia, there are several examples of industries with targeted sales tax exemptions.