On March 24, the Georgia General Assembly passed House Bill 960 (H.B. 960), which would adjust the statutory interest rate applicable to tax assessments and refunds and addresses other issues related to refund claims for Georgia sales and use taxes.1 H.B. 960 passed the legislature while the Georgia Department of Revenue (Department) continues to consider regulatory action that would eliminate the payment of interest on sales and use tax refund claims for purchases made with direct pay permits. H.B. 960 is currently awaiting Governor Nathan Deal’s signature. 

Background

Georgia’s 12% annual interest rate on tax assessments and tax refunds has long been one of the highest in the country.2 In the late summer of 2015, the Georgia House Ways and Means Committee formed a special subcommittee to study the impact of large sales and use tax refund claims on the state and its localities. The special subcommittee was also tasked with reviewing the state’s confidentiality laws related to the relationship between the Department and political subdivisions. H.B. 960 was the result of the work of the special subcommittee led by Representative Trey Kelley who was committed to ensuring, as a matter of fairness, an equalized interest rate for underpayments and overpayments.

Concurrent with the meetings of the special subcommittee, the Department proposed a regulatory change revoking all current direct pay permits and requiring taxpayers applying for a new direct pay permit to agree to waive interest on refund claims related to purchases made with the new direct pay permit.3

H.B. 960

The legislation contains provisions to update the statutory interest rate, provide certain advance notifications to political subdivisions, allow for the review of certain approved sales and use tax refund claims, and encourage taxpayers to timely provide all refund claim documentation.

Following is a summary of the legislation:

  • Interest Rate Reduction: H.B. 960 amends Georgia’s statutory interest rate for both assessments and refunds, applicable to all Georgia state and local taxes, to a rate more closely reflecting the prevailing market rate—the federal prime rate plus three percentage points, updated annually.4
  • Political Subdivision Notification: H.B. 960 requires the Department to notify affected local political subdivisions of any “refund claim of local significance,” defined as a sales and use tax refund claim that (as filed) amounts to 10% or more of the yearly distribution to the locality.5 The notification would not include any taxpayer identifying information. H.B. 960 provides that localities may use the information to “make reasonable budgetary recommendations” to local tax officials, subject to Georgia’s tax information confidentiality provisions.
  • Audits of (not by) the Department: H.B 960 provides that the Department’s audit of refund claims of local significance may be subject to review by the Georgia Department of Audits and Accounts.6 In its review, the Department of Audits and Accounts would assess whether the Department “followed proper procedure and used appropriate methodology” in reaching its final determinations on the refund claims.
  • Tax Tribunal Review: H.B. 960 provides that refund claims of local significance pending with the Department for two years would automatically be transferred to the Georgia Tax Tribunal.7 The Georgia Tax Tribunal would determine the party “at fault” for the delay in processing the refund claim. If the Department is primarily at fault, the taxpayer would be entitled to the full amount of applicable interest. However, if the taxpayer is primarily at fault, the taxpayer would not be entitled to any interest. After the Tax Tribunal’s determination, the matter would be remanded back to the Department for its determination of the underlying refund claim.
  • Electronic Filing/Local Reporting: H.B. 960 provides that taxpayers required to file Georgia tax returns electronically would be required to file their refund claims electronically.8 Taxpayers filing Georgia sales and use tax refund claims would also have to provide an allocation of the local portion of the total refund amount by political subdivision.9
  • Effective Date: H.B. 960 would be effective July 1, 2016.10 The legislation expressly states the new interest rate would only apply to interest accrued on or after July 1, 2016.11 Moreover, the notification and automatic transfer requirements would also only apply to claims received on or after the effective date.12

Sutherland Observation

To avoid any unintentional delay, taxpayers should consider filing claims for refund only after collecting and gathering all relevant documentation. Moreover, taxpayers should carefully document any correspondence with the Department during the audit process in the event the refund claim remains outstanding for more than two years and is transferred to the Tax Tribunal for its determination of the party at fault for the delay.

Revision of Georgia’s Direct Pay Permit Regulation

The proposed regulatory changes regarding the waiver of refund interest for direct pay permit holders have been met with opposition from the business community including the Georgia Association of Manufacturers (GAM), the Council On State Taxation (COST), and the Tax Executives Institute (TEI).13 A revised version of the proposed regulation, which still contains the interest waiver provision, remains pending.14

Sutherland Observation

It remains unclear whether the Department will retract or further revise the proposed regulation in light of H.B. 960 which effectively nullifies the proposed regulation’s prohibition of interest on sales and use tax refund claims arising from purchases made under a direct pay permit.

On behalf of GAM, Sutherland previously submitted formal comments and testified that, should H.B. 960 be enacted containing the provisions addressing interest on refunds, it would be inappropriate and unnecessary for the Department to address the issue in an alternative manner through regulation.15