I sent this newsletter to the members of the Georgia General Assembly today and wanted you to have a copy.

Dear Legislator:

With the economic challenges that have faced Georgia in the last year, I think it is important that we step back and look at the retail industry's footprint in Georgia. Did you know that retail is one of the state's biggest industries? Not only do retailers collect over $4 billion in state sales tax and pay millions in other taxes to state and local governments, but they employ nearly 800,000 Georgians and pay more than $13.8 billion in wages annually. And none of these numbers includes the cash and in-kind contributions retailers make to civic and charitable organizations in communities from Savannah to Rome, from Augusta to Columbus, and from Valdosta to Atlanta.

The last eighteen months have been the worst years ever for Georgia's retailers. We saw more store closings, from big stores like Goodys to small ones like McDonough Feed and Seed in my own community, hundreds of dark store fronts appeared across the state. An accompanying result of the economic downturn was that State revenue also plummeted.

Georgia laws have not helped this, in fact, they have disadvantaged the retail industry by making it less competitive with its neighbors by sustain an inventory tax; by refusing to allow the off-premises Sunday sale of alcohol; and by allowing e-commerce unfair advantages over the state's brick and mortar stores.

So, before you go home this year please think about giving the state's economic engine a tune-up, because "when retail works, Georgia works.

John Heavener
President
Georgia Retail Association

                                                “When Retail Works, Georgia Works”


Retail Employment on Georgia

The retail industry today directly represents 788,975 jobs in Georgia; accounting for 18.81 percent of the total employment in Georgia. That's just about one in every five jobs.

Retail wages are competitive. According to the Bureau of Labor Statistics for 2009 the average retail manager earns $35.61 per hour; the average first line retail supervisors earn 17.35 per hour; the average retail buyer earns $29.25 per hour; the average sales counter clerk earns $10.06 per hour and the average cashier $9.30 per hour.

The retail industry offers substantial employment opportunities. Part-time and temporary work is plentiful ranging from small, independent retailers to national and multinational retail chains. Solid store experience can lead to an array of retail management and store support career ladders. A college degree can afford direct entry into management training programs and regional/corporate level career paths.

The retail trade industry is a dynamic field with diverse career ladders, a wide range of employee benefits and on-the-job training that is increasingly driven by high-end technology that requires advanced skills. Employers recruit job candidates from community colleges and universities and train incumbent workers to upgrade their skills for career advancement.

Retail trade employers struggle to attract and retain the best and brightest employees because of the misperception that jobs are low-wage and lack growth potential. In reality, today's retail trade careers are more than just cashier and sales associate positions; they encompass information technology, marketing, communications, loss prevention, finance and merchandise sourcing.

During the current economic environment, and for years to come, job retention and creation in the retail industry are critical elements of Georgia's economic health.

Ad Valorem Inventory Tax

Retailers pay a disproportionately high portion of the tax. From a tax policy standpoint, taxes should be very broad based; they should not single out any particular industry. Many industries in Georgia are exempt from the inventory tax. These include most manufacturers, automobile dealers, heavy equipment dealers and farm equipment dealers. This leaves retailers to pay the lion's share of the inventory tax. To impose such an onerous tax almost exclusively on an industry that employs a large number of Georgia's citizens is not sound tax policy.

The inventory tax makes Georgia anti-competitive. Georgia is one of only ten states in the country that imposes an inventory tax. None of the states that border Georgia impose an inventory tax. Moreover, three of the other nine states are phasing out their inventory tax (Indiana, Ohio and Rhode Island). Inventory taxes are especially harmful to retail stores and others that have large amounts of merchandise. They distort economic decisions because they force companies to make business decisions based on minimizing tax burdens, rather than economic activity. They create strong incentives to move inventory (such as warehouses and shipping facilities) to other states.

Georgia's inventory tax presents administrative nightmares. The valuation of inventory is done at the county level. There is no uniformity among the counties in how inventory is valued or how auditors are compensated. To the contrary, there is wide variation from county to county. This leads to significant taxpayer confusion. Moreover, the ambiguities and inconsistencies in the interpretation and administration of Georgia's inventory tax frequently results in tax assessments that are overstated. This forces taxpayers to choose between paying money they do not owe, and engaging in expensive, time-consuming litigation to correct the assessment.

Frequent litigation is a sign of a bad tax. Taxes should be administered and interpreted in a fair, consistent and unambiguous manner. The Georgia inventory tax fails on all of these counts.

The ad Valorem inventory tax is one of Georgia's most unreasonable taxes; one that discriminates retailers from other commercial enterprises in the state. The tax requires retailers to pay a fee based on the cost of its inventory. The fee a retailer is required to pay is derived by multiplying the millage rate that your county charges for your location by your inventory at 40% of its cost.

Some retailers are exempt from this onerous tax; these include automobile dealers, heavy equipment dealers, and farm equipment dealers. Most manufacturers in Georgia are also eligible for Freeport Tax Credits that exempt the company from paying taxes on most if not all of its inventory that they have created as long as it is sold within a one year time period.

By eliminating the ad Valorem inventory tax the General Assembly can help create a more even playing field for Georgia's retailers vis-à-vis it neighboring states and other groups in Georgia that have been given preferential treatment.

Some retailers have constructed warehouse facilities in nearby states and could locate future facilities in Georgia if the ad Valorem inventory tax was abolished.

Sales Tax Holiday Benefits Georgia

An Analysis of the Costs and Benefit of the Back to School Sales Tax Holiday

Until now the arguments surrounding the Sales Tax Holidays have been based primary on political instincts and personal observations. However, new research shows that the temporary tax relief for essentials such as inexpensive clothing, paper, and pencils is more than just a popular break for strapped consumers. A study by The Washington Economics Group (WEG) found that sales tax holidays enhance a state's fiscal health.

With Georgia moving into one of the most austere budget years in decades, lawmakers must wisely shepherd sharply limited revenues. Some members of the Georgia General Assembly will surely call for a hiatus in the Back to School Sales Tax Holiday and the Energy STAR Holiday.

In October, 2009 the Georgia Association of Educators issued a news release linking the Georgia's Back to School Sales Tax Holiday to a revenue shortfall which, they claimed, in turn, caused teachers to be furloughed as part of the state's budget cutting process. This is not a new knee jerk reaction to the Back to School Sales Tax Holiday. While nearly every legislator votes for the Back to School Sales Tax Holiday bill (due to its popularity with voters), some express reservations about the legislation.

While that study looked specifically at Florida, the conclusions can be extrapolated for Georgia's Back to School Sales Tax Holiday as well.

• The study performed by The Washington Economics Group found that the Back to School Sales Tax Holiday has a positive economic impact, increasing gross sales by about 8 percent for the month.

• Based upon the study, it is estimated 6,174 full-time equivalent jobs - 71 percent in retail and the more widely distributed, are generated by the Back to School Sales Tax Holiday.

• It can also be estimated that an additional $177 million in wages were paid during Georgia's Back to School Sales Tax Holiday.

• And lastly, it appears that there is a net increase of $33 million in taxes collected due to increased economic activity.

There is an increase in economic activity due to the stimulating nature of the Back to School Sales Tax Holiday. While the effect is temporary, it does mean more temporary jobs and more overtime for existing employees. However, the result is that there is an additional period of spending on goods and services that continues as a halo effect for the following months.

The Back to School Sales Tax Holiday directly increases sales of items that remain taxable by significantly increasing traffic to retail establishments, and indirectly, because labor income is increased by $199 million, a large portion of which is, in turn, spent generating additional sales taxes.

These numbers are best estimates. While Florida's sales tax holiday lasted ten days, the limits for clothing were $50, not $100 like Georgia. The benefits for Georgia may well be understated.

The link for the complete study can be found on the Georgia Retail Association's website. The link is: http://www.georgiaretail.org/documents/BacktoSchoolSalesTaxHolidayOct20.pdf


Vendor's Allowance for Collecting Sales Taxes

During the First Session of the 2009-2010 Term of Georgia General Assembly, it was suggested by some to do away with the vendor allowance - that fee that retailers are allowed to retain for collecting and remitting sales tax revenue to the state. In Georgia that amount is 3% of the first $3,000 collected and .5% thereafter.

Georgia has a 4% state sales tax rate. Counties may impose local sales tax of 1%, 2%, or 3%, consisting of up to three 1% local-option sales taxes as permitted by Georgia law. These include a SPLOST, a homestead exemption (HOST), and one for public schools which can be put forth for a referendum by the school board instead of the county commission (in cooperation with its city councils). Also, the city of Atlanta imposes an additional 1% municipal-option sales tax (MOST), as allowed by special legislation of the Georgia General Assembly, solely for the purpose of fixing its water and sewerage systems.

The state retains the 4% portion of the state sales tax revenue and remits to the counties the local MOST, SPLOST or ESPLOST local sales taxes. For collecting that money the Department of Revenue (DOR) charges the counties a 1% fee. The Department of Revenue collects much more from the counties for processing their share of sales tax receipts than it pays to retailers. As can be seen from the following chart, it costs retailers much more money to process sales tax receipts than they can recoup and the Department of Revenue earns an enormous amount of money for paying the counties their share.

Retailers' Costs, State's Income From Sales Tax Collection Fees

Costs of Preparation and Vendor's Allowance (in dollars)

The cost to the vendor is based on a national average cost of 3.09%


Streamline Sales Tax

Streamline Sales Tax (Main Street Fairness Act)

The battle for the shrinking American budget is moving online with a vengeance.

The economic downturn took its toll on traditional retail outlets over the past couple of years, and the recession which has taken its toll on shopping centers, strip malls and mom and pop stores across the state, has left the Internet poised to enter 2010 as a larger force in retail.

Frugal shoppers are turning to the Internet in droves to compare prices, hunt for bargains, download coupons and seek advice from fellow shoppers. Retailers, weary from years of building sprees, are diverting capital away from storefronts and to Web sites, investing in the technology to make online shopping easier, faster and cheaper.

Online sales, excluding travel, had been growing at a roughly 20 percent to 25 percent annual clip for much of the decade, before slowing to a 6 percent gain in 2008.

There was a time when big brick-and-mortar retailers looked askance at their online divisions, figuring stores should receive most of the company's resources and attention because they generate the bulk of the sales. No longer, traditional chain stores are starting to recognize what Amazon long has known: The benefit of an online store reaches far beyond the dollars generated by selling merchandise.

What this means for Georgia is that the income taxes and sales taxes that have been traditional paid by brick and mortar retailers is starting to evaporate at an alarming pace.

Currently, as you know, Georgia's retailers collect more than $4 billion each year in sales taxes - nearly one-third of the state's entire annual budget. However, with more and more consumer purchases being made through the Internet Georgia's retailers are suffering and Georgia is losing significant sales tax revenue.

In past years the House Ways and Means Committee has heard from Dr. David Sjoquist, of Georgia State University, who testified that Georgia lost $375 million (or 3.5% of sales tax collections) in revenue from e-commerce in 2004. Another source - a study performed by the Center for Business and Economic Research at the University of Tennessee estimated Georgia's losses at $675 million from internet sales in 2003. Regardless of which number you choose, the loss of revenue due to the State of Georgia is significant.

The Georgia Retail Association endorses Georgia's entry as a Participating State because it supports a level playing field for all sellers in this state. A survey of our membership indicated an 89% support for equal application of sales and use tax collection requirements for remote sellers with no physical presence in the state and Georgia's main street merchants.

Many, if not most, online, remote sellers have no investment in the state yet are receiving the benefit of not having to charge their online customers sales tax. In fact, it is becoming more and more common to hear these "e-tailers" advertise "no sales tax" as a way of promoting purchases on their sites. Consumers who shop over the Internet or across state lines often cite the 'tax free' benefit of these purchases. Catalog shoppers also may believe bypassing local merchants eliminates the sales tax and therefore reduces their costs by 5, 6 or even 7 percent.

The truth is, while an out-of-state retailer may not be required to collect sales tax, the consumer is required to report these out-of-state untaxed purchases to the state of Georgia and pay a 'use tax' on most of them. Simply put: If you would pay sales tax on a purchase made in Georgia, you should pay the tax on the same item if it was purchased from outside of Georgia.

The fact is that mounting revenue losses will result in Georgians paying more in other forms of taxation to compensate for these losses or facing continued cuts in state programs. In good economic times, the impact may not be felt as dramatically as it is now. However, with times being as tough as they are - now is the time to act.

E-commerce is here to stay, changing the way we live and work. It has become an economic juggernaut and it is making many people wealthy. E-commerce and the Internet are no longer fledgling industries in need of being propped up at the expense of existing local businesses. You know, as I do, that simply requiring remote sellers to collect and remit sales tax - whatever the mechanism eventually established for doing so - will not stifle e-commerce.

The Streamlined Sales Tax Project, or as it currently called - the Main Street Fairness Act, doesn't attempt to dictate the mechanics for achieving tax parity - that process will be extremely complex, and Georgia should be at the table to work out those details. The Participating States are just saying that when a collection system is developed, the retail establishments in their states will receive fair treatment - Georgia's elected representatives should support that fair treatment for Georgia's retailers as well.

Sunday Sale of Alcohol


As Georgia's grocery stores struggle to keep their doors open they are faced with the fact that state laws preclude them from fully selling their products. For Georgia is one
of only three states in the country that does not provide some option for the off-premises sale of beer, wine or liquor on Sunday.

A reasonable approach to this issue is to adopt Sunday sales legislation which allows local communities to decide whether local retailers should have the ability to sell alcohol on Sunday. Georgians were empowered to make this decision for local restaurants 10 years ago.

For many Georgians, the current law defies common sense. The State allows them to
drive to a restaurant or sports facility on Sunday to buy and consume alcohol, but the
State will not allow them to go to a grocery store and buy alcohol to consume in the safety of their own homes.

Because of this double-standard arguments about highway safety ring hollow and appear to be so much hyperbole.

To complicate this issue, shopping patterns have changed in Georgia. Sunday is now the highest volume shopping day in many areas throughout Georgia. Yet customers who enter a retail store on Sunday are prohibited from purchasing beer to enjoy while watching football or a bottle of wine for dinner. And stores are forced to shut down a significant portion of their operations on the day when traffic is high.

Because Georgia is the only state in the Southeast with a total ban on Sunday sales, we are at a distinct disadvantage. Until current law is changed, Georgia will continue to lose revenue to across-the-border competitors in every surrounding state.

For retailers throughout Georgia, the opportunity for off-premise Sunday sales is about good customer service and basic economic fairness.

For More Information Contact:
johnh@georgiaretail.org
Telephone – 678-814-4176
Toll Free - 678-523-1765
Fax – 678-814-4178
www.georgiaretail.org

About GRA: The Georgia Retail Association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, and grocery stores has been serving the state’s business community since 1961. The Georgia Retail Association represents an industry with more than 71,300 retail establishments, and more than 715,000 employees - about one in five of Georgia’s workers – with annual sales of more than $115 billion.

John C. Heavener
Georgia Retail Association

Printer Friendly CRR January 11, 2010 Special Edition