Georgia’s Move To Single Factor Apportionment

By Kenneth H. Bridges, CPA, PFS     March 2011

For companies that operate in multiple states, the amount of state income tax paid to each state is typically determined by applying an “apportionment factor” to its total net income.  Historically, Georgia, like most states, has been a “3-factor” state, meaning that it determines the amount of a multi-state company’s income that is subject to Georgia tax by comparing the company’s payroll, property and sales in Georgia to its payroll, property and sales everywhere.

In recent years, many states have begun to more heavily weight or rely solely on the sales factor (i.e. sales within the state as a percentage of sales everywhere).  This methodology tends to reward companies based in the state (who likely have a larger percentage of their property and payroll in the state compared to the percentage of their revenue derived within their home state) and punish companies based outside the state (which may have very little property or payroll within the state, but derive revenue from the state).

Georgia is following this trend, and will gradually shift from the 3 factors to solely the revenue factor over the course of 2006 – 2008.  This will in most cases be good news for profitable companies based in Georgia with a large percentage of their revenue from outside the state, since these companies will likely see their Georgia tax liability go down.  Conversely, companies based outside Georgia with revenue from Georgia sources will likely see their Georgia income tax increased under these new rules.

Georgia residents who are shareholders of S-corporations or members of LLCs will typically be unaffected by this change, since Georgia taxes its resident individuals on their worldwide income, then permits a credit against such for taxes paid to other states.  Nonresident members of multi-state S-corps and LLCs based in Georgia, however, likely will benefit from the change.

Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP an Atlanta-based CPA firm.

This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice.  The article provides only a very general summary of complex rules.  For advice on how these rules may apply to your specific situation, contact a professional tax advisor.