By Kenneth H. Bridges, CPA, PFS June 2016
Georgia, like most states, offers a bounty of credits against its income tax; some of which fall into the almost too good to be true category. Some (e.g. the jobs credit, research credit and retraining credit) must be generated by a business entity, some can essentially be purchased (e.g. the low-income housing credit and the film credit), and others are based on taking some sort of action which the government is encouraging (e.g. the Georgia credit for donations to Student Scholarship Organizations). No matter your situation (and whether a business entity or an individual), the odds are that at least one of these credits is available to you.
Qualified education expense credit – Individuals and businesses can receive a credit against their Georgia tax for contributions to qualified student scholarship organizations (SSOs). An SSO is a 501(c)(3) organization which allocates at least 90% of its annual revenue for scholarships to enable students in grades K through 12 to attend a Georgia school of their parents’ choice. Married couples can claim a credit of up to $2,500, singles a credit of up to $1,000, and corporations a credit up to 75% of the amount of their Georgia tax liability. Legislation enacted in 2013 increased the amount of the credit to up to $10,000 for individuals with income from a flow-through entity (e.g. S-corp, LLC or partnership); with the limitation that the amount of the credit cannot exceed 6% of the income (including compensation) from the flow-through entity. For a married couple, the amount can be up to $20,000, if each has sufficient flow-through entity income. This is quite a deal, as the combined tax benefit from the Federal income tax deduction and the Georgia credit can actually exceed the amount of the contribution made. There is a cap each year on the amount of credits that the Georgia Department of Revenue can award ($58,000,000 for 2016). You must pre-qualify your credit by sending a form to the DOR for approval. For 2015 and 2016, the cap was reached (and exceeded) on January 1, the first day that GA DOR would accept applications. Consequently, for 2016 each business and individual who applied on January 1, 2016 was permitted a credit for only 53.36% of the amount for which they applied and would otherwise be eligible if the cap had not been exceeded. Accordingly, if you want to participate, you need to apply with an SSO prior to the year for which you wish to contribute in order that the SSO can submit your application to GA DOR on January 1.
Low-income housing tax credit – In order to encourage the development of affordable apartments for lower income persons, Georgia offers a tax credit for investment in such projects. Often, the credit cannot be fully utilized by the owner of the apartment project, so it is sold at a discount (e.g. 83 cents per dollar of credit) to others who can utilize it. Technically, the credit is not “transferable”, but Georgia law generously permits the credit to be allocated to any partner in a partnership or any member of an LLC, such that the credit can essentially be purchased.
Film tax credit – In order to encourage the production of films in Georgia, the state permits film production companies a credit of up to 30% of their qualified expenditures in Georgia. To the extent the credit exceeds a company’s Georgia income tax, it can be claimed as a credit against its withholding tax, and then further can also be sold to another taxpayer. Typically, the credit is sold to taxpayers who can use it for approximately 87 – 92 cents per dollar of tax credit.
Conservation credit – A Georgia tax credit of up to 25% may be claimed for the value of property donated for conservation purposes, or for the value of a conservation easement donated. A Federal income tax deduction is also available for such donations. The Georgia credit, to the extent not utilized by the taxpayer, may be sold to another taxpayer.
R&D tax credit – Businesses can claim a Georgia credit for 10% of the amount by which their qualifying Georgia research expenses exceed a base amount; with the base amount generally determined by multiplying the company’s ratio of R&D to revenue for the preceding 3 years by current year revenue. The credit can only offset 50% of current year tax liability, with any excess carrying forward for up to 10 years. Owners of S-corps and LLCs can claim the credit on their personal returns. Also, the entity may make a special election to claim the credit as an offset against its Georgia withholding tax.
Seed-capital research fund investment credit – A credit of up to 25% is available for the amount invested in a research fund which provides early-stage financing for businesses formed based on intellectual property resulting from research conducted in Georgia research universities; and a credit of up to 10% is available for investments made directly into entities in which a qualifying research fund has invested. Any unused credit carries forward for up to 10 years.
Taxes paid to other states – Georgia residents are subject to Georgia tax on their worldwide income. However, Georgia permits a credit for taxes paid to other states, so long as the effective rate paid to the other state(s) does not exceed the Georgia rate on the same income.
Jobs tax credits – Employers can receive tax credits of up to $5,250 per year for 5 years for each new job created in Georgia. The amount of the credit, the number of new jobs which must be created in order to be eligible for the credit, and the types of businesses eligible for the credit all depend on the geographic location of the employer (with more generous terms for new jobs created in less prosperous areas) and the type of new job created. The credit can be used to offset income tax or the employer’s withholding tax obligation.
Employee training programs – Employers can receive a credit of up to $1,250 per employee for approved retraining programs, and a credit of up to $150 per employee for approved basic skills education.
Angel investors – Investments made in early stage companies are eligible for a Georgia tax credit of up to 35% of the amount invested (with utilization of the credit limited to $50,000 per year). The credit is claimed in the second year following the year of investment. It is available to accredited individuals and special purpose flow-through entities which are investment vehicles. A maximum of $5,000,000 per year of credit is available for the entire state. Qualified companies have to be less than three years old, employ fewer than 20 people, have less than $500,000 in revenue in any prior year, be headquartered in Georgia, have raised less than $1,000,000 in equity and debt financing (other than commercial loans), and cannot be engaged in retail, real estate, professional services, membership based activities, gambling, natural resource extraction, investment activities, insurance, entertainment, amusement, recreation, etc. A qualified business must register with the Department of Revenue by submitting a Form IT-QBR, and a qualified investor seeking to claim the credit must submit Form IT-QI-AP between September 1 and October 31 of the year for which the credit is claimed.
Other tax credits – Additional tax credits available include those for child care, caregiver’s expenses, adoption of a foster child, purchase of an alternative fuel vehicle, diesel particulate emission reduction equipment, disaster assistance, driver’s education expenses, employer-provided daycare, rehabilitation of historic homes and other structures, increasing port traffic, investment in manufacturing equipment and facilities, life insurance for national guard members on active duty, low-income persons, enterprise transportation vehicles (for transporting employees in less-developed counties to and from work), high-deductible health insurance, purchasing or retrofitting a home with accessibility features, rural physicians, and water resource conservation and development.
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.