In 2005, Georgia became the first state in the Southeast to adopt a “Single Factor Gross Receipts” apportionment formula. This apportionment formula treats a company’s gross receipts (or sales) in Georgia as the only relevant factor in determining the portion of that company’s income subject to Georgia’s six percent corporate income tax. Georgia is one of only 13 states exclusively using Single Factor Apportionment. Most states still use a traditional apportionment formula in which a company’s in-state property and payroll factor into the calculation of a company’s corporate income tax. Single Factor Apportionment significantly reduces the effective rate of Georgia income taxation of companies with substantial sales to customers outside Georgia. In addition, Georgia does not use the so-called “Throw Back Rule,” which many states use to tax income from sales of goods or services to out-of-state customers if the customer’s state does not already tax that income.
Example: Assume for the 2012 tax year, In-State Manufacturing Co., Inc. has the following total overall taxable income and gross receipt sales in Georgia as compared to total gross receipts: Taxable Income: $10 million Percent of Gross Receipts in Georgia: 5 percent
Accordingly, in 2012, only $500,000 of In-State Manufacturing Co., Inc.’s income would be subject to Georgia’s six percent corporate income tax, making its corporate income tax liability $30,000. [($10 million x 5%) x 6%] To many companies, Georgia’s single factor apportionment formula could mean savings of hundreds of thousands or even millions of dollars over the long term.
Georgia offers a range of corporate tax credits that enable companies to minimize or completely eliminate state corporate income taxes which, at six percent, are already among the lowest in the nation.
For some of the credits, the amounts are dependent on the “tier status” of the community. Tier status refers to an annual four-tier ranking of the economic vitality of Georgia’s counties. The highest credits are offered in the counties with the greatest need (Tier 1 and 2 counties), while the most prosperous counties (Tier 3 and 4 counties) offer lesser amounts. The Tier Map can be found on page two.
Companies may qualify for the Georgia’s Job Tax Credit Program if they or their headquarters are engaged in strategic industries such as manufacturing, including, but not limited to, manufacturing alternative energy products for use in solar, wind, battery, bio-energy, bio-fuel, and electric vehicle enterprises, warehousing & distribution, processing, telecommunications, broadcasting, tourism,research and development industries, biomedical manufacturing, and services for the elderly and persons with disabilities. Depending n the community’s tier, companies must create between 2 and 25 net new full-time jobs in a 12-month period to qualify. Credits must also be accrued for additional jobs created in years two through five.
Jobs created outside of year five may not be claimed unless a new threshold for job creation (year 1) is met. Qualified companies can claim a tax credit with a value of $1,250 – $4,000 per job, per year, beginning with the first taxable year in which the new job is created and for the following four years the job is maintained.Companies that create 5 or more jobs in Less Developed Cencus Tract (LDCT) recieve Tier 1 Tax credits. Opportunity Zones (OZ), Military Zones (MZ), as well as Georgia’s 40 least developed counties, offer job tax credits to businesses of any nature, including retail businesses that create at least 2 new jobs. The credit value for each county is indicated on the tax credit map on page two and payroll withholding benefits are described below.
Credits may be taken against 100 percent of state corporate income tax liability in Tier 1 and 2 counties, or against 50 percent of state corporate income tax liability in Tier 3 and 4 counties. Credits that are claimed but not used in any taxable year may be carried forward for 10 years from the close of the taxable year in which qualified jobs were established. Additionally, in Tier 1 counties, excess credits may be credited to Georgia payroll withholding taxes (with a limitation of $3,500 per job, per year). Job Tax Credits are subject to program requirements as outlined in O.C.G.A 48-7-40 and rules published by the Georgia Department of Community Affairs in Chapter 110-9-1.
The Port Tax Credit Bonus is available to taxpayers who qualify for the Jobs Tax Credit or the Investment Tax Credit and increase imports or exports through a Georgia port by 10 percent over the previous or base year. Base year port traffic must be at least 75 net tons, five containers or 10 TEUs (twenty-foot equivalent units); if not, the percentage increase in port traffic will be calculated using 75 net tons, five containers, or 10 TEUs as the base. The Port Tax Credit bonus can be used with either the Job or Investment Tax Credit program, provided that the company meets the requirements for one of those programs. Port Tax Credits may be used to offset up to 50 percent of the company’s corporate income tax liability. Unused credits may be carried forward for 10 years, provided that the increase in port traffic remains above the minimum level and that the company continues to meet the job or investment tax credit requirements. Note that the Port Tax Credit Bonus cannot be utilized with Quality Jobs Tax Credit. The Georgia Ports are indicated on the Tier Map above.
Port Tax Credit Bonus for JOB Tax Credits: This “port bonus” is an additional $1,250 per job credit for taxpayers with qualified increases in shipments through a Georgia Port. The $1,250 is added to the Job Tax Credit. Taxpayer that creates 50 jobs in a Tier 1 county and increases its port traffic by at least 10 percent is eligible to receive the port bonus. Taxpayer is eligible for $1,312,500 in tax credits spread over five years to reduce or eliminate Georgia income tax: [50 jobs x ($4,000 job tax credit + $1,250 port tax credit bonus) x 5 years] = $1,312,500.
Port Tax Credit Bonus for INVESTMENT Tax Credit: This “port bonus” increases the Investment Tax Credit to the equivalent of a Tier 1 location regardless of the tier level. The port bonus would therefore be equal to five percent of the qualified investment in expenses directly related to manufacturing or providing telecommunication services with the credit increasing to eight percent for recycling, pollution controland defense conversion. See page 14 for additional information on Investment Tax Credits. Taxpayer qualifies for a port bonus in a Tier 4 county, invests $100 million in a manufacturing plant plus $25 million in recycling equipment. Taxpayer is eligible for a $7 million investment tax credit to reduce or eliminate Georgia income tax: [$100 million x 5%] + [$25 million x 8%] = $7 million.
Companies that create at least 50 jobs in a 12-month period where each job pays wages at least 110 percent of the county average are eligible to receive a tax credit of $2,500 to $5,000 per job, per year, for up to five years, based on the scaled system below. New quality jobs created within seven years can qualify for the credit. Credits may be used to offset the company’s state payroll withholding once all other tax liability has been exhausted, and may be carried forward for 10 years. New jobs that do not meet the requirements for the Quality Jobs Tax credit may count toward eligibility requirements for that program separately.
Georgia offers an incentive to new and existing business entities performing qualified research and and development in Georgia Qualified research expenses are defined in Section 41 of the Internal Revenue Code of 1986, as amended, except that all wages paid and all purchases of services and supplies must be for research conducted within the state of Georgia. Companies may claim a 10 percent tax credit of increased R&D expenses subject to a base amount calculation.
The base amount = Current Year Georgia Gross Receipts x [(the average of the ratios of the company’s qualified Georgia research expenses to Georgia gross receipts for the preceding three taxable years) OR 0.300, whichever is less]. For new Georgia companies with no prior R&D expenditures in Georgia, the base amount is 30 percent of the current year’s Georgia gross receipts.
The credit is determined by taking the current year’s qualified R&D expenses, subtracting the base amount, and multiplying by 10 percent. The R&D credit is applied to 50 percent of the company’s net Georgia income tax liability after all other credits have been applied. Any excess R&D credits can then be applied to the company’s state payroll withholding. Any unused credits can be carried forward for up to 10 years from the close of the taxable year in which the qualified research expenses were made.
Companies that hire at least 1,800 net new employees, AND either [invest a minimum of $450 million or have a minimum annual payroll of $150 million] may claim a $5,250 per job, per year tax credit for the first five years of each net new job position. Companies must create the required 1,800 jobs by the close of the sixth taxable year following the withholding start date. However, if a company has invested at least $600 million in qualified investment property by year six, the company will have two additional years (until year eight) to meet the job creation requirement. If a company has invested at least $800 million in qualified investment property by year eight, the company will have two additional years (until year ten) to meet the job creation requirement. Credits are first applied to state corporate income tax liability, with excess credits eligible for use against state payroll withholding. Credits may be carried forward for 10 years. A maximum of 4,500 new jobs created by any one project may be eligible to receive these credits. If the required 1,800 new jobs are not maintained, the company may be subject to recapture provisions. A taxpayer creates 2,000 new jobs and invests $500 million in a new facility and equipment. The taxpayer will be eligible to receive $52.5 million in tax credits over five years to reduce or eliminate Georgia income tax, with any excess credits eligible for use against state payroll withholding. [2,000 jobs x $5,250 credits/job x 5 years = $52.5 million].
The Georgia Entertainment Industry Investment Act offers an across-the-board flat tax credit of 20 percent based on a minimum investment of $500,000 on qualified productions in Georgia. The $500,000 minimum expenditure threshold can be met with one or the total of multiple projects aggregated. An additional 10 percent uplift can be earned by including an imbedded, animated Georgia logo and web link onthe project’s promotional webpage, or through approved alternatives if they offer equal or greater marketing opportunities for the state. Qualified expenditures include materials, services and labor.
Eligible productions include feature films; television movies, pilots or series; commercials; music videos; and certain interactive entertainment projects including types of animation, special effects and video game development. Interactive Entertainment companies are eligible for this credit only if their gross income is less than $100 million and the maximum credit for any qualified interactive entertainment production company and its affiliates will be $5 million. The total credits available for interactive entertainment production companies and their affiliates will be capped at $25 million and will be awarded on a first come, first served basis.
This income tax credit may be used against Georgia income tax liability or the company’s Georgia payroll withholding. If the production company chooses, they may make a one-time sale or transfer of the tax credit to one or more Georgia taxpayers.
Employers who purchase or build qualified child care facilities are eligible to receive Georgia income tax credits equal to 100 percent of the cost of construction. The credit for the cost of construction is spread over 10 years [10 percent each year]. Unused child care credits from the purchase or construction of a child care facility can be carried forward for three years. The child care facility must be licensed by the state.
Employers who provide or sponsor child care for employees are eligible for a credit against Georgia income tax equal to 75 percent of the employer’s direct costs. Credits that are related to the operating cost of the facility may be carried forward for five years. All child care credits can be used against 50 percent of the taxpayer’s income tax liability in a given year.
The Georgia Department of Labor (GDOL) coordinates the federal Work Opportunity Tax Credit Program. THE WOTC program is a federal tax credit incentive that the U.S. Congress provides to private-sector businesses for hiring individuals from nine target groups who have consistently faced significant barriers to employment. Among others, target groups include unemployed veterans, certain TANF (Temporary Assistance for Needy Families) and food stamp recipients, and certain TANF (Temporary Assistance for Needy Families) and food samp recipients, and certain rsidents of an Empowerment Zone (EZ) or Rural Renewal County (RRC). Participating companies are compensated by being able to reduce their federal income tax liability with a tax credit between $1,200 to $9,000 per qualified employee, depending on the target group. The most frequently certified WOTC is $2,400 for each adult new hire. An employer must request and receive certification from the Georgia Department of Labor that the new hire is a member of at least one of the nine WOTC target groups before the employer can claim te WOTC on its federal income tax return. Although veterans are the only target group currently approved to receive these credits, Congress may extend the credits to the other eight target groups, so employers are encouraged to submit the required paperwork for all new hires in any of the nine target calendar days after the new hire begins work.
Business inventory is exempt from state property taxes (0.25 mills). More than sixty percent of Georgia counties and cities have also adopted a Level One Freeport Exemption, set at 20, 40, 60, 80 or 100 percent of the inventory value.
A Level One Freeport Exemption may exempt the following types of tangible personal property:
Local governments can expand the Freeport Exemption and authorize a call for a referendum to approve the creation of a Level Two Freeport Exemption, which would exempt from local property tax any business inventory or real property not covered not including retail inventory. Like the Level One Exemption, counties and municipalities may choose to implement a Level Two Freeport Exemption at the 20 percent, 40 percent, 60 percent, 80 percent, or 100 percent level.