Finding the LOSTs
Understanding Morgan County's local option sales taxes
by Kathryn Purcell
photos by Angelina Bellebuono
It all starts with seven
In Morgan County, consumers pay a seven percent sales tax on most every purchase they make. Of that seven percent, four percent goes to the state, and three percent comes back to the county.
"Say you go to the clothing store and buy a blouse," Charles Wiley, director of public information for the Georgia Department of Revenue, said, providing a real-world example of sales tax. "Let's say it was a $100 blouse. You would pay $107, $7 of that is the seven percent sales tax. Then, the store takes that $7 collected in sales tax at the end of the month and remits it to the state. We take four percent. That's the state sales tax. We take [the other] three percent and give it back to the county government for their three-percent local sales tax."
The three percent that comes back to the county is then divided among three local sales taxes, each receiving one percent of the total three -- LOST (Local Option Sales Tax), SPLOST (Special Purpose Local Option Sales Tax) and ELOST (Education Local Option Sales Tax).
LOST and SPLOST
In the state of Georgia, county governments have the ability, if approved by the constituency, to levy LOSTs and SPLOSTs. LOST goes to cover road projects, according to Morgan County Manager Michael Lamar, while SPLOST is used for capital projects.
A SPLOST can be five or six years long, depending on whether the county and the municipalities come to an agreement on the distribution of funds. Morgan County's current SPLOST is slated to last for six years.
"It's a six-year levy because the county agreed with the municipalities about a sharing agreement," Lamar said. "A portion of the SPLOST is shared with the municipalities."
The current SPLOST was voted on in November 2006, and the goal for collections is $26 million.
The county came upon this amount based on information from previous SPLOST collections -- the previous SPLOST began with an average collection of $204,000 a month and ended with an average collection of $295,000 per month -- as well as the cost of proposed projects.
"We took historical data from SPLOST IV and looked at the increase in collections from the previous year," Lamar said. "The old SPLOST ran from 2002 to 2007...After looking at that, we came up with what we thought would be a reasonable amount [of increase]. There was a 44 percent increase over five years, or an increase of nine percent a year."
Collections from this SPLOST will go towards various capital projects in Morgan County, as well as in each of its municipalities. These projects, and their estimated costs, include the following, according to a Resolution on SPLOST provided by Lamar:
•Public Safety Facility/Detention Center and Capital Equipment, $10.5 million
•Road and Bridge Improvements and Equipment, $10.5 million
•Library Facility Improvements and Equipment, $900,000
•Recreational Facility Improvements and Equipment, $750,000
•Water System Improvements and Equipment, $233, 391
•Sanitation Improvements and Equipment, $59,000
•Purchase of and Improvements to County Administrative Building, $1 million
City of Madison
•Road and Bridge Improvements and Equipment, $600,000
•Public Works Building Construction/Improvements and Equipment, $400,000
•Public Safety Building Construction/Improvements and Equipment, $350,000
•City Hall Renovations, $250,000
•Park Improvements and Equipment, $204,400
City of Rutledge
•Water and Sewer System Improvements and Equipment, $158,600
City of Bostwick
•Road and Bridge Improvements and Equipment, $30,000
•City Hall Improvements and Equipment, $13,435
•Water System Improvements and Equipment, $15,000
City of Buckhead
•Road and Bridge Improvements and Equipment, $21,174
•Fire Station Improvement/Addition, $15,000
And progress on these projects has already started.
"We've put out the RFP (Request For Proposal) for the swimming pool," Lamar said. "The Denon facility for the public safety center, we're using the SPLOST to pay back the bond used to get the money up front. Next week, the RFP agent comes for the construction of the new jail...We were issued a bond for the Denon facility and the new jail. The SPLOST pays $10.5 million towards the bond taken out to build the jail and buy Denon."
Morgan County received its first check from the state Department of Revenue for the current SPLOST last April, so collections have been rolling in for a year. To date, SPLOST collections total more than $3.5 million, and the county is averaging more than $317,000 per month.
Lamar acknowledges that collections aren't at the point he thought they'd be, but that the county built enough of a buffer in the SPLOST for everything to work out.
"I'm not worried," Lamar said. "We assumed a 20 to 30 percent increase over six years. (Keep in mind, in the previous SPLOST, the county saw more than a 40 percent increase.) Even if things track lower than 2002 to 2007, we'll hopefully still be in the position to raise the $26 million."
If the worst were to happen, and the county not collect the total $26 million, well, they wouldn't spend that money, according to Lamar.
"The county's going to spend less money on its projects," Lamar said. "I can't see that we've spent more than we've collected."
In the state of Georgia, county boards of education also have the ability, if approved by the constituency, to levy a one-percent sales tax, called an ELOST, which can be in effect for no longer than five years. The money collected can be used by the board for three purposes -- buildings, buses and technology, according to Morgan County Superintendent Stan DeJarnett.
The current ELOST, ELOST III, was voted on in September 2005, with 90 percent of Morgan County voters pulling for the sales tax, according to Director of Operations Bob Monk. The goal for collections is $21,260,500.
"When we first started, we weren't sure how much one percent was worth," Monk said, of how the local Board of Education arrived at the goal total. "As we started to get monthly income, we were able to plan around that."
The current ELOST is significantly more than ELOSTs I and II, which were approved for more than $5.8 million and more than $8.2 million, respectively.
"We look at our needs," DeJarnett said. "The reason this ELOST is more than the other two is that it has the new school in it."
Current ELOST collections will go to fund more than just the new school. ELOST III projects, and their estimated costs, include the following, according to information provided by Monk:
•Morgan County Elementary School Gym/Sidewalks, $700,000
•Central Office Building/Furnishings, $1.3 million
•Morgan County High School Stadium, $682,000
•Morgan County Crossroads School Paving, $24,762
•Morgan County High School Gym, $5,259,700
•Morgan County High School Gym Bleachers, $72,038
•Morgan County Middle School Windows and Doors, $71,876
•Camera Systems for Morgan County Schools and Buses, $185,364
•Restroom Renovations, $81,650
•Buses, $581, 629
•Architect Fees, $252,487
•New School, $9 million
Similar to Morgan County government, progress on many of these Morgan County Board of Education projects has started and has, in some cases, been completed.
The Morgan County Elementary School Gym and Central Administration building projects, among others listed, are completed and currently in use. Those projects in progress include the construction of the Morgan County High School Gym, of which $2,429,199 has been paid; the installation of camera systems, of which there are 12 more buses left to finish; and the installation of new roofing, which is slated to be completed in June.
As of the last Morgan County Board of Education meeting, more than $8.6 million has been collected towards this ELOST thus far.
January 2008 collections, which arrived in April (collection checks for both the county government and board of education are always two months behind), totaled $230,774.54, compared to $284,927 in January 2007 and the average 2007 collection of $308,573.83 per month. Both Monk and DeJarnett expressed concern about the decrease in recent collections.
"The check we got two or three weeks ago was off $100,000 based on the average of previous checks," Monk said. "February and March may be off even more."
"We projected the collection rate would increase over time...but we didn't predict this recession in the economy," DeJarnett said, offering a possible explanation for the decline in collections. "I think it's also a reflection of people not traveling as much because of the cost of gas. A significant part of our money comes from people who don't live in Morgan County; they're just coming through."
If the goal of more than $21.2 million isn't collected, DeJarnett plans to move some of the proposed projects.
"If we don't collect it, we don't collect it," DeJarnett said. "We may have to shift some projects into the next ELOST."
Despite the worry around recent collections, DeJarnett still feels that sales tax is the best way to go about collecting money for these kinds of large-scale, education-related projects.
"I think our community expects us to do things in a first-class manner, to put children first, which means they need quality learning environments," DeJarnett said. "ELOST provides quality learning environments from a fiscally responsible source."
Of note, there has been some confusion recently about the reason why, if SPLOST and ELOST funds are being collected from the same transactions, both collection amounts aren't the same each month.
According to information provided by the Georgia Department of Revenue, collection totals for SPLOST and ELOST in a county will never be the same.
"Although each local sales tax is imposed at one percent the amounts distributed each month are never equal," a document titled 'Frequently Asked Questions on Sales Tax,' found on the Department of Revenue Web site, www.etax.dor.ga.gov, explained. "This is primarily due to the timing of collections, refunds and use taxes."
•Timing of Collections: "The reality of tax collections is that not all taxpayers report and remit all their taxes timely. Therefore the Department will bill (or assess) the taxpayer for the under-reported or under-paid taxes. This, however, does not prevent the Department from processing and distributing those collections we did not receive from that taxpayer. Therefore, one or more of the tax types may be short one month and different from another local tax due that jurisdiction."
•Refunds: "Taxpayer refunds are another cause for amount differences. For example, when a taxpayer over pays their taxes they are distributed to the local jurisdictions. If the taxpayer later files a refund claim, we confirm the validity of the claim, refund the taxes and interest to the taxpayer, and then adjust or subtract the amount previously distributed (plus interest) from the jurisdiction This reduces that month's distribution of the affected tax type."
•Use Taxes: "Use tax occurs when a purchaser takes possession of the product in one location, pays the sales tax, and then transports the product to another location where it's used; such as construction companies buying materials and delivering them to several construction sites throughout the region or state. Since the purchaser took possession of the materials at the point of sale, the sales tax would apply in that jurisdiction. Where the sales tax rate in the origin location is lower than the destination site (where the product is used), then the higher tax rate would also apply, but only to the tax that had not already been paid as a sales tax."
Wiley concurs, also sighting several reasons for the difference in check totals.
"Some of the things that can come into play, for instance, when retailers remit sales tax, they may be taking some credits where mistakes were made in previous months," Wiley said. "We may have determined, through audits or other things, that the correct amount wasn't remitted in previous months. Or, corrections may kick in."
Also of note, local sales taxes kick in "based on where the exchange of title and possession took place," according to the Department of Revenue Web site. For the typical retail transaction, this occurs at the cash register; however, for some transactions, the application of local sales tax depends on where delivery of the taxable service or product takes place.
While these factors come into play as far as the differing collection amounts, there seems to one, more simple explanation as to the decreasing collections, and that's the current decline in the economy. And, of course, it's not a Morgan County phenomenon, it's happening throughout Georgia and the nation.
"The economy has been suffering a little bit," Wiley said. "Sales revenues are down across the board. If you look at state sales tax, it has been going down quite a bit. Another thing, it can be OK in one commodity area, and in another it can be down. Sales tax, because it's based upon retail activity, is going to reflect what's happening in that sector of the economy."
There is, however, one ray of sunshine to keep in mind in this seemingly dismal situation.
"There's a huge incentive on the part of voters in the community to fund capital outlay projects with a one-percent sales tax because it keeps it off the property tax," DeJarnett said.
With Morgan County's recent property tax re-evaluations and resulting property tax increases for many county residents, keeping property taxes as minimal as possible feels like good news.