DEPARTMENT
OF
AUDITS
AND
ACCOUNTS
270 Washington Street, S.W., Suite 4-114
Atlanta, Georgia 30334-8400
270 Washington Street, S.W., Suite 4-114
Atlanta, Georgia 30334-8400
Russell W.
Hinton
State Auditor
(404) 656-2174
State Auditor
(404) 656-2174
April
13, 2007
Honorable Chip Rogers,
Chairman
Senate Finance Committee
Coverdell Legislative Office Building, Room 325-B
Atlanta, Georgia 30334
Senate Finance Committee
Coverdell Legislative Office Building, Room 325-B
Atlanta, Georgia 30334
SUBJECT: Fiscal
Note
House
Bill 186
Substitute
(LC 14 9734S)
(LC 14 9734S)
Dear
Chairman Rogers:
This
bill would make the sale of tangible personal property to, or used for or in the
construction of, an alternative fuel facility exempt from the sales and use tax.
The alternative fuel facility must be dedicated to the production and processing
of ethanol, biodiesel and butanol when such fuels are derived from biomass
materials such as agricultural products, or from animal fats, or the wastes of
such products or fats that are intended to be produced in this state. This
exemption would be in force from July 1, 2007 through June 30, 2012. The
exemption would not apply to sales of tangible property that occur after the
start of production and processing at the facility.
The
Georgia State University Fiscal Research Center provided the following narrative
on the revenue impact of this bill:
In
assessing the impact of this proposed exemption, it is important to note that
sales of tangible personal property directly used in a manufacturing or
processing process are currently exempt from the state sales and use tax. Thus,
the incremental impact of this proposed legislation would be to exempt materials
used in the construction of the building housing the processing equipment,
computer and other office equipment, and furnishings for the
facility.
Staff
of the Georgia Environmental Facilities Authority surveyed developers regarding
proposed alternative fuels facilities in all stages of development within
Georgia. The information gathered included size, capital investment and
feedstock. This information indicates a wide range of potential capital
investment depending upon the size of the facility and the type of feedstock
used. The survey also indicated that the proportion of total start-up costs
that would be covered by the exemption could vary greatly. For example, some
developers planned to use existing structures so that little or no construction
materials would be required. Others planned to build new structures to house
the processing equipment. In all, GEFA staff estimate that approximately 10% of
total investment costs would be on tangible property covered only by this
exemption. Finally, there is great uncertainty regarding the number and timing
of such facilities. One factor impacting the development potential is the price
of gasoline and diesel fuels which have been very volatile.
The
revenue impact of this legislation is uncertain since its impact depends on the
number of plants to be developed in Georgia, their size and the costs of
tangible property covered by this legislation. The revenue estimate for the
period July 1, 2007 through June 30, 2012 relies on assumptions regarding the
number of facilities developed per year, the total cost per facility and the
percent of the costs covered by the exemption.
Using
data from the GEFA survey, the average cost per million gallons of capacity for
a biodiesel facility is assumed to be approximately $990,000 and the typical
capacity size is assumed to be 15 million gallons. The assumptions for ethanol
plants are $1,700,000 per million gallons of capacity and the typical size is
100 million gallons. For both facility types, it is assumed that 10% of total
costs are for tangible property covered only by the proposed exemption.
It
is assumed that two ethanol facilities and two biodiesel facilities are
completed per year.
Based
on the assumptions regarding future development activity and cost parameters,
the expected reduction in state sales tax revenue is $1.5 million per year in FY
2008 through FY 2012. Assuming a 3% local sales tax rate, the expected impact
on local government revenue is a reduction of $1.1 million per year for each of
those fiscal years.
Sincerely,
/s/ Russell W.
Hinton
State Auditor
State Auditor
/s/ Shelley
C. Nickel,
Director
Office of Planning and Budget
Office of Planning and Budget