Local Sales Taxes on Energy Used in Manufacturing Being Eliminated

August 31, 2012

Updated on December 13, 2012.
Due to the passage of House Bill 386, the state and local sales and use taxes on energy used in manufacturing will be phased out over a 4-year period, beginning January 1, 2013.

The legislation established a process aimed towards making the impact of this removal of the local sales tax revenue neutral for city and county governments, provided that these governments adopt a local excise tax on energy used in manufacturing at the same rates. 


If the county enacts the excise tax and my city does not participate what happens?
You will be giving away revenue to the county and the other municipalities within the county who do choose to participate. The manufacturers within your city limits will be charged the excise tax and the revenue generated will be shared with the county and all of the other cities that are a part of the intergovernmental agreement. GMA highly recommends any city located within a county which has passed the excise tax ordinance to enter into an intergovernmental agreement so that the city can retain its share of the tax collected.

We do not have manufacturing in our city, why would we participate with the county’s excise tax?
A city needs to participate if the county has passed an excise tax ordinance because it will receive revenue from the excise tax based on the percentage share from LOST and SPLOST. The excise tax is meant to replace the sales tax that will be lost, so even if a city does not have manufacturing within its boundaries it still shares in the sales tax on energy used in manufacturing.

If we enter into an intergovernmental agreement with the county are the distribution amounts negotiated?
No. The revenue from the excise tax will be distributed on the same percentages as your local tax distributions. There should not be any negotiations involved with the county on how the excise tax revenue is split. (LOST, SPLOST, HOST, MOST)

How much revenue is at stake?
This is impossible to calculate since DOR does not collect sales tax data from point of sale, and the energy providers will not release information due to privacy concerns for their customers. The only way to determine the amount of revenue that is at stake is to enact the excise tax for the first year and then determine the amount based on what the revenues you receive from the energy providers.

If my city enacts the excise tax without the county will I have to share the revenue with the county and other cities?
No, if a city enacts the excise tax without the county it keeps 100% of all the revenue that is generated within its municipal borders. In this situation the excise tax will not be collected anywhere but within the city limits.

Our county did not enact an ordinance and we are debating whether we should impose the tax within our municipality. How do we know how much manufacturing is located within our municipality?
The exemption to the sales tax for energy used in manufacturing is granted to any company or person submitting exemption forms to energy providers. This process means the exemption to the sales tax is figuratively self-medicated. A company or person applying for the exemption is the party determining whether they qualify for the exemption. While there are auditing checks placed in the law, the exemption is not granted upon any determination by an energy provider or the municipality. Therefore, although a city may believe only a handful of businesses within their jurisdiction qualify as manufacturers, the city may be surprised to discover a much larger number of businesses may apply for the exemption.

Since our county decided not to enact a county-wide excise tax ordinance our city chose to pass one within our municipality. Are we done?
No. The law states that the excise tax will begin to be collected at the start of the next month succeeding passage of an excise tax ordinance. However, the energy providers must be notified of passage of such ordinance in order to properly begin collecting the tax. Although such notification is not written into the law, practicality and efficiency insist on such notification taking place. Municipalities should notify any energy provider in their jurisdiction of passage of such ordinance. Should a municipality need help with such notification to some of the larger energy providers, Rusi Patel at GMA will be glad to assist you in getting the information to the proper party.

Can we impose an excise tax for the energy used in agriculture?
No. The state law granting an exemption to the sales tax on the energy used in manufacturing also granted an exemption to the sales tax on the energy used in agriculture. However, unlike the exemption in manufacturing, cities cannot impose an excise tax for the sales tax revenue lost on the energy used in agriculture.

What your city needs to know

A county or a city may elect, by ordinance, to phase-in a max 2% excise tax to replace the sales tax on energy used in manufacturing over the same 4-year period. The rate of the phase-in would mirror the schedule of the phase-out of the sales tax (25% per year).

If a municipality has not received written notice from the county requesting a meeting to enter into an intergovernmental agreement by September 1, the municipality may enact the excise tax by ordinance or contact the county to enter into an intergovernmental agreement to levy it county-wide.

If the county elects not to notify the city or enter into an intergovernmental agreement, then the municipalities are authorized to levy an excise tax within the corporate limits of the municipality by passing an ordinance in the city. The county will not receive any proceeds from the municipal excise tax.

If a county decides to levy the excise tax and the municipality decides not to enter into an intergovernmental agreement for the county-wide excise tax, the tax will still be collected countywide, including in the city limits, and the municipality will not receive any proceeds.

If a municipality later decides to participate with the county after the tax is enacted, they must notify the county and within 60 days amend the intergovernmental agreement. The municipality will then receive revenue from the excise tax, starting 12 months after the amended intergovernmental agreement is finalized.
Please contact Rusi Patel at (678) 686-6210 or rpatel@gmanet.com if you have any questions or comments.