Multistate Tax Update -- May 14, 2015

Georgia: Legislation expected to raise $900 million for transportation infrastructure spending

Georgia Gov. Deal signed HB 179, the Transportation Funding Act of 2015 (the Act) into law in April. According to a summary prepared by the Georgia Chamber of Commerce (Chamber), the Act is expected to raise $900 million from new and existing transportation sources and create a dedicated, predictable, and sustainable stream of revenue for the repair and maintenance of the state’s roads and bridges. In addition, the Act contains a $200 billion bond package to contribute to transportation infrastructure improvements and transit system enhancements.

The summary highlights key accomplishments of the Act:

1. Addresses a $1 billion funding shortfall for maintenance and modernization of Georgia’s roads and bridges;
2. Reduces the state’s maintenance backlog and 50-year repair and improvement cycle;
3. Ensures that all state funding intended for transportation is directed toward transportation;
4. Creates transparency, accountability, and oversight of state transportation expenditures; and
5. Reduces funding instability caused by fluctuating gas prices and a depleted federal Highway Trust Fund.

Here are the Act’s major provisions:

1. Converts the funding mechanism from a combination motor fuel sales tax and excise tax model to an excise tax only model. This conversion eliminates the four percent state sales tax on the total pump price of gas, and replaces that and the 7.5 percent excise tax with a single 26 cents per gallon excise tax and 29 cents per gallon excise tax for diesel;
2. Ensures that all drivers, including those of alternative fuel vehicles (like electric cars), pay their fair share of road and bridge maintenance by imposing annual fees of $200 for personal use vehicles and $300 for commercial use vehicles;
3. Repeals the $5,000 tax credit on purchases of electric vehicles, and the $2,500 low-emission tax credit as of July 1, 2015;
4. Imposes a highway impact fee on trucks of $50 or $100, depending on weight, to account for the vehicles’ additional wear and tear on the highways;
5. Imposes a $5 per night fee on lodging accommodations, but it is not applicable to extended stay rentals over 30 days;
6. Eliminates the one percent sales and use tax exemption for aviation fuel as of June 30, 2015; and
7. Indexes the excise tax to fuel economy standards, and from July 1, 2016, to July 1, 2018, the excise tax is pegged to the Consumer Price Index.

The Tax Foundation applauded the fact that the Act dedicates a greater share of Georgia’s fuel tax revenue to transportation. But it criticized the indexing scheme as lacking transparency, making it difficult for Georgians to understand what is likely to be an increased tax burden. The Tax Foundation asserts,

[T]he tax will change with federal estimates of the costs of road construction and be adjusted to account for state estimates of increases in fuel economy. This differs markedly from most indexing methods, which key to the Consumer Price Index (CPI), and seem likely to facilitate increases in excess of the CPI inflation measure.

On the other hand, the Chamber commended state lawmakers for their commitment to the future of the state, and for making the roads safer, alleviating congestion, and reducing Georgia’s reliance on the federal government. In early February, SustainAtlanta also approved of the plan for the way it funds transportation projects, but expressed concerns about the loss of revenue for local governments.

Michigan: Voters reject ballot measure to fix “the sorry state of the roads”

Michigan lawmakers voted to utilize a different mechanism to address the state’s desperately needed infrastructure funding: A ballot proposal. However, Michigan voters last week rejected Proposal 1 (Prop 1), which would have increased fuel taxes while removing the sales and use tax from fuel sales and would have increased the sales tax on non-fuel items from six percent to seven percent.

The Detroit News described the rejection as “the worst smackdown in decades…a thumping… an old-fashioned shellacking by the voters.”

It should be noted that despite the colorful language used to describe the defeat, and the fact that 80 percent of voters rejected Prop 1, a dismal percentage of the electorate actually cared enough to vote. The Detroit Free Press acknowledged that the rainy day depressed what was already a very low expectation for voter turnout, just 20 percent.

In discussing the measure, the paper reported that the $10 million special election could have raised about $1.3 billion extra for roads, $200 million a year more for schools, $116 million for transit and rail, $111 million more for local governments, and given a $260 million tax break to low and moderate income families through restoration of the Earned Income Tax Credit (EITC). However, it was “likely one of the most complicated and confusing questions ever placed on a Michigan ballot…many voters expressed anger at lawmakers and state government for failing to come up with a better solution to the sorry state of the roads.”

The Detroit Free Press’s description of the source of the complications highlights the problem with the ballot language:

The complex nature of the proposal resulted from the need to replace school and local government revenues lost as a result of removing the sales tax from fuel sales to make room for higher fuel taxes, which unlike sales taxes, support roads and transportation. Features such as the restoration of the EITC were concessions to Democrats, whose votes Republican [Governor] Snyder needed to get the plan through the Legislature.

Supporters like the MLive Media Group Editorial Board (Editorial Board) observed that “it is time to pay the piper.” They backed Prop 1 because of its promise of better roads without harming schools and cities. The Editorial Board stressed that “any proposal to fund road improvements without raising taxes will likely result in big losses for schools and cities. There isn't anywhere else in the budget that would provide the kind of money our roads need.”

In its Transportation Reality Check, the Michigan Department of Transportation (MDOT) divulged that the taxes that fund transportation infrastructure are among the lowest in the country, and that the “road conditions reflect that level of investment.” In fact, neighboring Ohio spends $1 billion more per year on roads. “Michigan's transportation system is hurting, and waiting just makes things worse.”

States establish hurricane preparedness tax holidays around Memorial Day 2015

The Atlantic hurricane season runs from June 1, 2015, to Nov. 30, 2015. Experts’ initial predictions are that the 2015 Atlantic hurricane season may be one of the least active in decades; an early April outlook called for seven named storms, three of which are hurricanes, whereas the 30-year average is 12 named storms.

That said, experts caution that the number of named storms does not indicate how many will actually make landfall, nor what the storms’ severity will be:

The 2014 season featured the fewest number of named storms in 17 years (eight storms), but also featured the strongest landfalling hurricane in the mainland U.S. in six years (Hurricane Arthur on the Outer Banks), and featured two back-to-back hurricane hits on the tiny archipelago of Bermuda (Fay, then Gonzalo).

Furthermore, six of those eight storms became hurricanes, and Gonzalo was the strongest Atlantic hurricane since Igor in 2010.

Because these storms are so unpredictable, some states are offering tax breaks to help consumers prepare for the worst.

Louisiana

For example, the Louisiana Department of Revenue has announced that its 2015 Hurricane Preparedness Sales Tax Holiday will fall on Saturday, May 30 and Sunday, May 31, 2015, the weekend after Memorial Day.

During the two-day tax holiday, the state has authorized tax-free purchases on the first $1,500 of the sales price of each of the following items:

• Portable self-powered light source;
• Portable self-powered radio, two-way radio, or weather band radio;
• Tarpaulin or other flexible waterproof sheeting;
• Any ground anchor system or tie-down kit;
• Any gas or diesel fuel tank;
• Any package of AAA-cell, AA-cell, C-cell, D-cell, 6-volt, or 9-volt batteries, excluding automobile and boat batteries;
• Any cellular phone battery and any cellular phone charger;
• Any non-electric food storage cooler;
• Any portable generator used to provide light or communications, or preserve food in the event of a power outage;
• Any "storm shutter device";
• Any carbon monoxide detector; and
• Any blue ice product.

In addition, Louisiana law provides permanent state sales and use tax exclusion for storm shutter devices, and authorizes political subdivisions to provide a similar exclusion from their sales and use taxes. Storm shutter devices are “materials and products manufactured, rated, and marketed specifically for the purposes of preventing window damage from storms.” The state sales tax exemption on storm shutter devices is not limited to the two days of the sales tax holiday.

The following activities will be eligible for the tax exemption:

• Buying and accepting delivery of eligible hurricane-preparedness items or supplies;
• Placing eligible items or supplies on layaway;
• Making final payment on and withdrawing eligible items or supplies previously placed on layaway; or
• Ordering an eligible item for immediate delivery, even if delivery must be delayed, provided that the customer has not requested delayed shipment.

Hurricane-preparedness items or supplies purchased at any airport, public lodging establishment or hotel, convenience store, or entertainment complex are not tax-free.

Virginia

The state of Virginia is offering a similar tax holiday, from May 25-31, 2015. In future years, its hurricane and flood preparedness holiday will be combined with other tax holidays and held in August.

Items that are exempt from state sales tax during the preparedness holiday include:

• Batteries and flashlights;
• Bottled water and coolers;
• Tarps, plastic sheeting, and duct tape;
• Smoke detectors and fire extinguishers;
• Portable radios;
• Cell phone chargers; and
• First aid kits, provided that each item has a selling price of $60 or less.

Portable generators and inverters with a selling price of $1,000 or less per item are exempt, as are chainsaws with a selling price of $350 or less, and chainsaw accessories that have a selling price of $60 or less.

Florida

According to Gov. Scott’s 2015-16 budget recommendation, there is no hurricane preparedness state tax holiday for Floridians, which is unfortunate given Florida’s vulnerability to hurricane damage. In a rank of the top 54 cities and islands most affected by tropical storms and hurricanes, Florida had 22 cities on Hurricanecity.com’s list, as of March 5, 2015.

AboutOrlando reported that Florida’s history of this tax holiday is spotty: “It was the seven named storms that made landfall in Florida during the 2004 and 2005 hurricane seasons that prompted the initial hurricane sales tax holiday in Florida.” The next most recent tax holiday was in 2014, and included a nine-day period that was estimated to save Floridians $3.7 million.

North and South Carolina

These two states are also vulnerable to hurricanes, but have no tax hurricane preparedness holidays scheduled. Hurricanecity.com ranked three of North Carolina’s cities (Cape Hatteras, Morehead City, and Wilmington) as numbers one, two, and five, respectively.

Hurricancity.com ranked Myrtle Beach, Beaufort, and Georgetown, South Carolina at numbers 18, 34, and 41, respectively.

For additional information regarding these subjects, or any other multistate tax issues, please contact:

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

David H. Godenswager, II
216.348.5444
dgodenswager@mcdonaldhopkins.com 

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

Multistate Tax Services

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.