The Valdosta Daily Times
An estimated 21 counties and the cities located within are facing an uncertain future in light of the Georgia Supreme Court’s ruling on Oct. 7, 2013 declaring the unconstitutionality of an amendment to the Local Option Sales Tax (LOST) Act in 2010. The amendment allowed Superior Court judges to decide the division of the one cent sales tax proceeds between cities and counties who could not decide on their own.
The recent decision marks the fourth time the constitutionality of all or part of the Local Option Sales Tax Act has come before the state Supreme Court. In 1978, the Court declared the entire act to be unconstitutional, leading to a new version passed by the General Assembly in 1979.
Whether or not the state’s legislators will again step into the legal and political fallout from the Court’s decision in the upcoming 2014 session remains to be seen. In the meantime, the potential ramifications from the ruling are in the hands of the state’s Attorney General’s office. State tax laws are administered by the state’s Revenue Department, a client of the AG’s office as are all state departments.
Warren Calvert, senior assistant attorney general, has been tasked with interpreting how the Court’s ruling will affect the local governments caught in legal limbo. His office will provide advice and guidance to the Department of Revenue, which will in turn enforce the LOST Act accordingly.
“There are a lot of issues and parties involved. It’s a complicated matter,” said Calvert. “This isn’t the first time this office has been involved in the constitutionality of the LOST Act, and we were very involved in 1979 when the entire Act was declared unconstitutional.”
Calvert said there are more questions than answers at this point, including whether or not the Court’s ruling will affect current LOST collections.
“It’s not yet known to what extent the ruling may affect the Act retroactively,” he said, adding that he couldn’t comment on details regarding the issue, including the amount of time it may take for the AG’s office to complete its review.
For Lowndes County and the five municipalities, LOST revenues are an essential component of their operating and general funds. There are no restrictions on how LOST collections are used, while SPLOST collections have to be specifically designated for capital projects.
Under the current division of funds between the entities, Lowndes receives around $12 million per year, Valdosta $8 million, Hahira $300,000, Dasher $160,000, Lake Park $105,000 and Remerton $160,000.
After the governments could not reach an agreement on the future division of the one cent sales tax proceeds, the cities filed a lawsuit against the county in Sept. 2012 under the amendment which allowed for a Superior Court judge to make the decision.
With that avenue now closed, and with no agreement filed before the Dec. 30, 2012 deadline with the state, the collections that have been ongoing since Jan. 1, 2013 in anticipation of the judge’s ruling may have to stop. If collections cease, according to the original Act, the matter must be presented again to the voters on a referendum, and all governments involved will be without those funds for an extended period.
LOST is tied directly to the collection of property taxes, with each government required to roll back property taxes annually based on prior year collections. No LOST dollars would mean no rollback and property taxes would increase accordingly.
Or the AG’s review may lead to an understanding of the Court’s ruling that would allow for the LOST collections in the affected counties to continue pending arbitration, with any number of scenarios possible between the two extremes.
The Local Option Sales Tax Act was initially approved by the General Assembly on Feb. 20, 1975 and was put before the voters of Lowndes County on Aug. 12, 1975.
Voters approved the referendum and the Lowndes County Board of Commissioners adopted the resolution on Oct. 1, 1975, making it effective on April 1, 1976. Once passed, the Act provided for the automatic renewal of the tax if certain conditions were met, with no need for referendums to continue the collections.
No mention in the original resolution is made of how the tax proceeds were to be divided, other than the general statement of, “The tax hereby levied shall be exclusively administered and collected by the State Revenue Commissioner for the use and benefit of Lowndes County and the municipal corporations therein located entitled to the proceeds of such tax.”
Minutes of the Oct. 1, 1975 meeting at which the resolution was adopted shows concern on the part of the Commissioners about the tax.
“Commissioner (Julian) Lawson said he will second this motion with an exception: that after the second quarter it has been in effect, if it has an adverse effect on the local merchants, we discontinue it. Commissioner (Tally) Wisenbaker accepted the exception, seconded by Commissioner Lawson, motion carried unanimously.”
With the constitutional challenges to the original Act over the years, changes have included the 10-year collection period, the creation of special taxing districts based on the boundaries of the state’s 159 counties, and the caveat that the governments within those taxing districts/ counties to agree to the distribution of funds from the tax.
As noted in the ruling made Oct. 7, 2013 by the Supreme Court of Georgia, “problems have arisen when the governing entities cannot agree to changes in the distribution formula for purposes of renewing the certificate.”
The Act states that the issue would then go to nonbinding arbitration, which Lowndes and the five municipalities had to do in 2002. The current distribution ratios of Lowndes receiving 58 percent and the five cities sharing 42 percent were decided in that arbitration process.
When it came time to renew the agreement in 2012, the cities combined to request additional funds from the tax. The county proposed the percentages stay the same, with an alternative proposal for a 72/28 split in Lowndes County’s favor, while the cities requested 57 percent with the county receiving 43 percent, based on population.
In light of the services mandated by law that counties must provide that cities are not required to, the commissioners refused the cities’ offer, leading first to an unsuccessful mediation.
Then-County Chairman Ashley Paulk requested that Attorney General Sam Olens look at the issue and provide an opinion. Olens’ reply favored the county’s position, stating that service delivery responsibilities for the entire county population fall to the county and are not exclusive to the unincorporated area.
The mediation failed to provide a solution the parties would accept, and the five cities collectively filed a lawsuit against the county in Sept. 2012, opting to let a Superior Court judge to decide the division of the tax. The Supreme Court’s ruling throws that option out, declaring it unconstitutional as it “effectively grants judicial resolution of the allocation and distribution of tax proceeds, a process.. in clear violation of the separation of powers doctrine.”
Additionally, the Supreme Court’s decision also touched on the issue of relying on population as the criteria for the allocation of funds, stating that the allocations should not be based on any one criteria and were intended to reflect service delivery responsibilities.