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Senate Finance Committee unanimously backs bill to exempt tip income from state income tax; fiscal note estimates $65–$90 million annually
Summary
Senate Bill 2, which would exempt tips from Georgia state income tax, passed the Senate Finance Committee unanimously after debate over definitions, fiscal impacts and potential effects on workers who rely on tips; the committee reviewed a fiscal estimate of roughly $65 million to $90 million annually.
The Senate Finance Committee unanimously approved Senate Bill 2 (LC 500974), which would exempt tip income from Georgia state income tax. Sponsor Senator Dolezal presented the measure and referenced a fiscal note estimating the state's revenue effect in a range between $65 million and $90 million per year, depending on methodology and tax rates.
"This is a unique policy position," said Senator Dolezal, arguing the change would align state law with long‑standing questions about federal treatment of tips and reduce tax burdens on service workers. The bill uses the Internal Revenue Service's definitions to distinguish tips from mandatory service charges; the committee record notes tips are defined on the bill's line 27 and that compulsory service charges are not treated as tips per IRS rules (lines 32–33).
Members asked how the bill would be administered and who would benefit. Questions focused on whether the exemption should be limited to particular industries, how it would interact with existing tip‑credit wage rules, and whether exempting tips might create incentives for shifting pay into untaxed tips for higher‑paid services. "Should we limit this to certain industries...?" asked Senator Estevez, citing concerns about potential loopholes and unintended consequences for professions that could restructure pay as tips.
Committee members also discussed the history of tip reporting and federal guidance, with one senator noting TEFRA (the Tax Equity and Fiscal Responsibility Act of 1982) as a milestone in tip reporting rules and the IRS's longstanding role in defining and allocating tips. The sponsor described the fiscal‑note methodology as using IRS tip totals scaled to Georgia's share of taxable income and then applying state income tax rates, which produced the committee estimate range of $65–$90 million per year.
After brief discussion the sponsor moved to pass Senate Bill 2; the motion was seconded by Senator Steele. The chair announced a unanimous committee vote in favor (9–0), and the bill will proceed to further Senate consideration.
