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Economic Development

Nov. 10 – Understanding the ‘Business Tax’ that Savannah Businesses and Professionals Must Pay to the City

Category: Economic Development

By Lou Phelps, Savannah Business Journal

November 10. 2017 – Business pay a lot of taxes and fees:  state income taxes on profits; sales taxes, inspection fees, property taxes on their business if they own their office building or store; inventory taxes (which the City of Savannah is phasing out); and a “Business Tax.”  How to calculate what the pay to the City of Savannah for the latter is sometimes not understood by businesses, and many in the public are not aware that businesses pay this latter tax.  

A business tax is levied on those businesses with one or more locations or offices in the corporate limits of the City, and on applicable out-of-state businesses with no location or office in Georgia pursuant to language in  O.C.G.A. §48-13-7, based upon gross receipts of the business.

But, professionals can also opt to pay a flat rate of $400 each year, versus divulging their gross revenues.   

The rate of tax that a business pays is based on the ‘profitability ratio' for the type of business or occupation they are in, even if they don't actually have any profit. 

Their ‘profitability ratio’ is based on their occupation, or profession, which is set based on nationwide averages – not the Savannah or Georgia economy. Each business must have this business license to operate, and must pay the tax that is calculated based on their business classification.  Classifications are determined using North American Industry Classification System (NAICS) codes, using the first two characters of that code. 

And, businesses and professions within the City are classified based on “the dominant business activity” of the business.  So, if you are car wash, but also use your office there for your accounting services business, which ever has the highest gross sales is the classification, that is supposed to be indicated as the code you indicate on your annual return. 

The profitability averages are calculated by the U.S. Office of Management and Budget and the U.S. Internal Revenue Service.

The amount of tax is calculated by taking the gross receipts received times the following percentates:

A Up through 3.00%

B Over 3.00% through 4.00%

C Over 4.00% through 5.30%

D Over 5.30% through 7.00%

E Over 7.00% through 13.50%

F Over 13.50%

The six profitability classes are incorporated into the Business Tax Rate Schedule that can be found on page 111 of the City of Savannah’s 2017 Revenue Ordinance at https://www.savannahga.gov/DocumentCenter/View/85

But there is Another Option for Professionals

However, each person engaged in the practice of a profession, such as an attorney; physician; osteopath; chiropractor; podiatrist; dentist; optometrist; psychologist; veterinarian; landscape architect; land surveyor; physiotherapist; public accountant; embalmer; funeral director; civil, mechanical, hydraulic, or electrical engineer; architect; marriage and family therapist, social worker, and professional counselors are viewed differently - whether individually or as a member or employee of a firm, partnership, or corporation.  Those professions are detailed in as described in O.C.G.A. §48-13-9(c)(1) through (18).

They can shall elect to pay their business tax based on gross receipts combined with profitability ratios OR can pay a flat fee of $400.00 per practitioner licensed by the State.

And, a practitioner paying a fee according to the latter is not required to provide information to the City relating to gross receipts of the business or practitioner, but must pay the $400 for each member and professional employee of the firm.  In that case, each practitioner may file a separate return and pay the

flat tax, or the firm may file one return, attach a list of practicing professionals, and pay a

tax totaling $400.00 per professional.

This election – this choice - is to be made on an annual basis and must be done by the business tax

return due date each year.

No business tax on professions shall be assessed or collected from any practitioner of a profession whose office is maintained by and who is employed in practice exclusively by the United States, the State of Georgia, a municipality or county of the State, such as an engineer who is an employee of the City of Savannah.

Realtors also pay a Business Tax, based on revenues. Each real estate sales agent is considered to be an independent agent and is liable for a business tax.  Whatever a Realtor’s agent files is deducted from their reported total revenues.

When is the Tax Calculated, Levied and Due?

All business taxes levied (except for professionals electing to pay a flat fee) are levied on the gross receipts of the current calendar year. However, for convenience of both the City and the taxpayer, each business subject to the business tax shall, on or before January 31st of the current calendar year, file with the Revenue Department a signed return showing the actual gross receipts representing the total actual income of that business during the preceding calendar year. That return is used to determine the final tax for the calendar year just completed and as an estimate of the gross receipts and business tax for the current year.

The ‘tax return’ for professionals shall show the election to pay either on gross receipts or a flat fee. Each business required by the State to hold a State sales tax identification number has to provide that number to the City on its business tax return form.

If a business operated for only a portion of the prior year, the amount of gross receipts for that part should be reported in on the return. “The return shall also show a figure putting the receipts for such part of a year on an annual basis with the part-year receipts bearing the same ratio to the whole-year receipts as the part year bears to the whole year. Said figure shall be the estimate of gross receipts of the business for the current calendar year in establishing the business tax liability,” the city’s regulation states.

Many businesses find the January 31 date difficult to comply with, as a company’s year-end ‘books’ are often not closed by that date. 

Business taxes and any applicable regulatory fees are due to the City Revenue Department within 30 days following January 1st of each year and,  if not paid by May 1st of each year, is subject to delinquency fees. 

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