Tax law change puts pinch on local governments

A change in state law that deals with how delinquent property taxes are collected could lead to a loss in revenue for some Middle Georgia governments.

Two midstate tax commissioners estimate that revenue from interest and penalties assessed for late taxes could decline about 45 percent or more in the upcoming fiscal year. The change, which goes into effect on July 1, provides a longer grace period for property owners paying late taxes. There’s also new rules about how the interest rate and penalties are applied.

Under current law, the late-payment penalty after 90 days of delinquency is a 10 percent charge. After June 30, that would change to a 5 percent penalty that would be applied 120 days after the taxes are due. That same rate would be applied every subsequent 120 days up until 480 days, according to the Association County Commissioners of Georgia.

“I think it more than likely will be a loss (in revenue). The question is how much, because there are so many variables,” said Clint Mueller, legislative director for the county commissioners’ association.

The penalty and interest revenue in Macon-Bibb County is estimated to decrease about 45 percent in the upcoming fiscal year, Tax Commissioner Wade McCord said.

In Houston County, “we’ll probably lose half of what we normally collect,” Houston County Tax Commissioner Mark Kushinka said.

Houston County’s fiscal 2017 budget is projecting about $400,000 less in revenue due to the change in law, Commission Chairman Tommy Stalnaker said.

“What we have done is planned for the worst and hoped for the best in this particular situation,” he said. “The thing that could be detrimental to some governments is if they failed to pick up (on the new law) and have significant revenue losses in the next fiscal year.”

The new law also impacts how interest is applied and will provide some uncertainty because it’s tied to the bank prime rate set annually at the federal level. Under the current law, that charge is an annual rate of 12 percent. After July 1, the amount of interest will become the bank prime loan rate plus 3 percent.

For instance, the prime loan rate in 2016 is 3.5 percent, so under the new law, the annual interest would be at 6.5 percent, according to the ACCG.

“We could see taxpayers change their behavior due to the decreased initial penalty and reduced interest and see more delinquents resulting in more earned interest and penalty over time, but this would be offset by the decline in cash flow and borrowing costs experienced by the county,” ACCG informed county governments earlier this year.

The new law also creates a 20-percent interest cap on the principal amount that was initially due. While local governments could feel the pinch of less revenue during the first year that taxes are late, there could be slightly higher penalties and interest once the timeframe exceeds a year

“From a property owner’s standpoint, I guess it’s good news to them, because they’ll get a longer grace period,” Mueller said. “They still have to pay interest and pay it at a lower rate and won’t have to get hit with a penalty for 120 days.”

The Georgia Department of Revenue will have the rules and regulations for the new law completed by July 1, said department spokesman William Gaston.

This story was originally published June 10, 2016 at 5:03 PM with the headline "Tax law change puts pinch on local governments."