Supreme Court Decisions Have Georgia Impact

This week’s Courier Herald column:

The surprise retirement announcement from Supreme Court Justice Anthony Kennedy has served to remind us once again that there is a third and equal branch of government to the ones that get most of the coverage in political columns such as this. His announcement came as the court ended its term for summer recess, and on the heels of several key decisions.

As this column focuses primarily on state and local politics, today we’re going to look at a couple of those decisions and their implications for the State of Georgia. I’m going to leave the politics of Kennedy’s replacement to others for now.

First up is a case in the decades long battle of the Tri-State Water Wars. Florida decided to forgo a negotiated settlement and sued the State of Georgia in order to gain control over the water flows of the Chattahoochee River, and ultimately, the water levels in Lake Lanier. In addition to providing recreation, Lanier is responsible for a lot of metro Atlanta’s drinking water.

A Special Master had reviewed the case for Supreme Court justices and recommended a solution favorable to Georgia. In a 5-4 decision, the Justices sent the case back to the Master saying he used too strict a standard on determining the water flow. Justice Kennedy sided with the majority. Georgia’s Clarence Thomas wrote the dissenting opinion, saying there was enough evidence for the court to rule (in Georgia’s favor) now.

The Court also decided the Janus vs AFSCME decision, ruling that public sector unions can’t require government employees fees for their collective bargaining activities. The Court ruled that mandating a worker’s fee go toward someone else’s speech isn’t constitutional.

As public sector unions are among the largest base of union members, the end result is a partisan one. Unions are deprived of an income stream that almost exclusively supports the policy objectives of the Democratic Party.

Another decision is one that will have long standing implications on Georgia’s budget, and ultimately, state and local tax rates. The decision in South Dakota v Wayfair changed the long standing assumption that for a state to collect taxes from a company, that organization must have nexus – a physical presence – in the state. The ruling gives states more leverage and legal standing to collect taxes on sales conducted over the internet.

It is currently state law that Georgians are legally obligated to pay sales taxes on their online purchases, but there is no enforcement mechanism. State policy makers have note that while income taxes have recovered with the economy growing stronger and population growth, sales tax collections have remained flat. The shift to internet commerce is leaving tax money on the table, uncollected.

This past legislative session, Georgia passed a law that reduced its income tax rate, and set future income tax cuts conditioned on achieving certain revenue benchmarks. It’s the stated policy goal of many to shift our tax collections from majority income taxes (which are currently half of Georgia’s tax revenues) to a one based on taxing sales (which are currently one quarter of state tax revenues).

Local governments are equally dependent on sales tax collections. The more internet commerce siphons off sales taxes, the more revenue must be made up from income taxes at the state level, and property taxes at the local level. Thus, the Supreme Court’s ruling should provide for more income tax cuts and lower local millage rates.

Critics of collecting internet sales taxes like to pretend that the internet is a fledgling and delicate entity that somehow should be exempt from taxation. Pretending that a sale conducted via broadband is substantially different from a sale conducted in person is the ultimate in picking winners and losers.

The reality is that the largest and fastest growing companies based on enterprise values are all internet based. Facebook, Amazon, Netflix, and Google/Alphabet –FANG as CNBC’s Jim Cramer has dubbed them, have been driving stock market values for the past three years. Meanwhile, Toys ‘R Us has joined Sports Authority as “former big box retailers”, with once all-powerful Sears on life support.

The result of the Wayfair decision won’t harm “the internet”. It will level the playing field of all businesses who will then compete equally without an inherent tax advantage. The biggest result for the state, however, is that Georgia will be able to continue to shift the tax burden from income and onto sales.