Georgia should gradually move away from personal income taxes and toward a larger tax base that pays sales taxes, the head of the commission studying the state tax system said Tuesday morning.

It'll be an "evolutionary" process, but it's inevitable, said A.D. Frazier, chairman of the Special Council on Tax Reform and Fairness for Georgians, which was established in June to study all of the state's tax policies and exemptions.

"The progressive states we compete against are moving in this direction as we speak," he said. "This will color the way we are perceived by businesses around the country. The goal is not to get more money but change the incidence of taxation. That's where the smart states are going."

This summer, the council held five formal
meetings among the 11 members and hosted 11 fact-finding sessions across the state, which pulled in more than 750 attendees and 200 speakers. The group moved forward with the goal to promote a pro-growth and job-friendly tax policy.

"There's mass confusion and a good deal of serious anger at the administration's taxes," Frazier said. "They don't know whether to blame the local, state or national government because once they get their tax bills, it doesn't matter. It just doesn't seem fair."

Of the state's $15.1 billion tax base, about 48 percent, or $7.3 billion, comes from personal income taxes. About 35 percent, or $5.3 billion, comes from sales taxes. Corporate income taxes drop into third place at $602 million.

"The dogma of the day is expanding the base of tax-paying entities in anticipation of lowering the tax rate. It's essential that we do this," Frazier said. "We must also improve competitiveness of our tax structure with surrounding states. We cannot add $1 to cigarette taxes. We just can't do that to our border communities."

For corporate income taxes in Georgia, the council will recommend lawmakers give the Department of Economic Development flexibility to customize incentive packages for new businesses and offer two broad credits for job creation and capital investment. In the end, Frazier wants to track and measure the return on investment with credits.

"Let's see what we got for what we spent," he said. "Every time we give an exemption, that means you pay more or we must cut. Competition will be fierce to keep South Carolina from going after our businesses, if they aren't already doing it."

Some exemptions need to stay, he added, including input used in manufacturing, mining and agriculture industries and energy exemptions. Frazier further wants to establish a tax court to handle tax appeals across the state.

"It's scary if you have a property tax dispute what you have to go through to get a fair hearing," he said. "We need an open, transparent and easy appeals process."

Local governments should be able to use sales taxes for operations if they agree to roll back on inventory or property taxes, he added.

"The inventory tax is perceived as the most anti-business policy in the tax code. That and energy are the two big drivers when it comes to choosing to locate a business somewhere else," Frazier said. "The Department of Revenue should also establish better alignment with local governments, give timely reimbursements and launch an aggressive pursuit of abuse and uncollected sales tax revenues."

Lawmakers should review the tax structure every four to eight years, in alignment with the gubernatorial election cycle, and establish a "look-back" analysis to mark if policy changes were effective.

The council will make more specific recommendations to Lt. Gov. Casey Cagle and House Speaker David Ralston on Jan. 10, and then lawmakers will develop and vote on a proposal to change the tax system.

"The one goal is, how do we generate more revenue without raising more taxes? That sounds mutually exclusive when you think about it, but there is a way," said Rep. Larry O'Neal, chairman of the House Ways and Means Committee and author of the bill that created the council. "We need to create a more stable way to collect those taxes that are due. The more stable and the more predictable, the more we as lawmakers can plan how to deal with revenues."

O'Neal said he hopes legislators will address the cost of compliance and corporate tax credits, which he called a "back door appropriation."

"It's time to become honest with ourselves about our tax revenues and exemptions, and the recommendations of this council is a wake-up call," he said. "We need to move toward the eradication of taxation on the inputs into the business cycle and move toward the outputs, which encourages savings and allows for a free market approach."

After the session ended, lawmakers lingered and chatted in groups, discussing the feasibility of the council's recommendations and how to address it during this year's legislative session.

"Policy lasts beyond this year. A spending cut is only good for this year, but good policy lays the groundwork for generations to come," said Sen. Jack Hill, chairman of the Senate Appropriations Committee. "I see a spirit of cooperation in the legislature that I haven't seen in a long time. We don't have time or resources to waste. We need to come up with a plan and get it into place."