ATLANTA — Georgia’s sales tax exemption on inputs used in manufacturing is a loser in the strict sense of its net impact on state and local tax revenues, according to a new audit.

However, the tax break more than pays for itself in terms of investment and jobs created in the state’s manufacturing businesses, the Center for Business Analytics and Economic Research at Georgia Southern University concluded in a report commissioned by the Georgia Department of Audits and Accounts.

The General Assembly eliminated the state sales tax on energy used in manufacturing a decade ago, adding it to other exemptions on production inputs already in state law, including equipment, industrial materials and packaging supplies.

The tax exemption on all of those manufacturing inputs cost state and local governments almost $6 billion in tax revenues on average during each of the last five fiscal years, according to the audit. After accounting for the increase in taxes generated by economic activity related to manufacturing, the net cost of the exemptions totaled $2.7 billion per year, the report found.

But those numbers pale in comparison to the $122.5 billion in average annual economic output generated during the five-year survey period by businesses that used the sales tax exemption.

The audit found that additional economic activity supported 171,125 jobs directly with an average salary of $77,450 per year, and 424,333 jobs in total with an average annual salary of $68,909.

“The total net tax revenue only tells part of the impact of this sales tax exemption,” the report stated. “From an economic development standpoint, without the sales tax exemption, 2% to 25% of the overall economic impact would not have been retained by or relocated to Georgia over the analyzed time frame.

“Using the data from the ‘but-for’ analysis, there would be 3,423 to 42,781 fewer direct jobs in Georgia. The loss of these direct jobs would have reduced total employment by 8,487 or 106,083.”

The audit also concluded the manufacturing sales tax exemption helps the state avoid the “pyramiding” of sales taxes paid by the customers who buy manufactured products. Manufacturers typically pass on the costs of the sales taxes they pay to consumers.

Since pyramiding of sales taxes drives up the costs of products, Georgia manufacturers forced to pass on the cost of taxes could lose sales to competitors in other states that use sales tax exemptions to keep the price of their products lower, the report found.

This story is available through a news partnership with Capitol Beat News Service, a project of the Georgia Press Educational Foundation.