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Georgia Enacts Income Tax Legislation

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On March 2, 2018, Governor Deal signed “House Bill 918” (the bill) into law, incorporating numerous changes to Georgia tax law. This year poses a unique change to Georgia income tax legislation due to several more notable changes to Georgia tax law than in recent years. A few of the significant provisions of the bill are summarized below.

IRC Conformity

Georgia updated its tax law to remain in compliance with the code outlined by the Internal Revenue Code (IRC) in effect as of February 9, 2018. However, Georgia still lacks conformity from numerous provisions of the IRC. For example, Georgia decouples from Federal bonus deprecation; IRC Section 179 deductions for qualified real property; IRC Section 163(j) interest expense limitations put in place under Public Law 115-97 (Federal Tax Reform), as well as other Federal provisions. A complete list of deviations from the IRC can be found in House Bill 918 or Georgia Code Section 48-1-2.

Income Tax Rates

  • The bill lowers Georgia’s corporate income tax rate from 6 to 5.75 percent.
  • Graduated rates for individuals remain the same, except for the top graduated rate, which is reduced from 6 to 5.75 percent.
  • The reduced corporate and individual rates noted above are effective for tax years beginning on or after January 1, 2019. The lower rates are set to expire on December 31, 2025.
  • The bill also has a provision to further lower the corporate and top individual rates to 5.5 percent, effective with tax years beginning on or after January 1, 2020. However, this rate reduction must be ratified by the Governor on or after January 13, 2020. If the additional rate reductions are ratified, they will have the same expiration date (December 31, 2025).

Foreign Sourced Income

Georgia provisions have historically allowed corporations to take advantage of a deduction from Georgia taxable income for foreign dividends received; specifically noting IRC Subpart F income as deductible. While this deduction remains in effect, the bill amends Georgia law to state that income specified in IRC Section 951A is not eligible for this deduction. The income included under this federal code section is global intangible low-taxed income (GILTI) which is a result of the recent federal tax reform.

This specific provision is technically effective for all tax years beginning on or after January 1, 2017, but since the underlying federal provisions are not effective until the 2018 tax year, for practical purposes, the same applies to the new Georgia provisions.

Standard Deduction – Individuals

The new legislation increases the standard deduction for individual taxpayers as follows:

  • Single Taxpayer / Head of Household: Increased from $2,300 to $4,600
  • Married Filing Separate: Increased from $1,500 to $3,000
  • Married Filing Joint: Increased from $3,000 to $6,000

This specific provision is effective for all tax years beginning on or after January 1, 2018.

Net Operating Losses

The bill follows the federal tax reform changes on net operating losses (NOL) providing that there is no carryback period and an unlimited carryforward period for most corporations. Furthermore, the new law incorporates the federal 80 percent limitation, but applies it to Georgia income. For example, for NOLs generated in 2018, the deduction that can be taken in a single year is equal to the lesser of (1) the NOL carryforward generated in 2018 or (2) 80 percent of the corporation’s pre-NOL deduction Georgia taxable income.

This specific provision is technically effective for all tax years beginning on or after January 1, 2017, but since the underlying federal provisions are not effective until the 2018 tax year, for practical purposes, the same applies to the new Georgia provisions.

Assignability of Tax Credits

A number of Georgia tax credits are eligible for assignment amongst affiliated entities. The bill updates the law to allow e-tax credits which are eligible to be claimed against withholding taxes by the entity that generated the credit, to also be claimed against withholding taxes by the affiliated entity to which the credit is assigned. The same requirements placed on the assignor of the credit, are placed on the assignee at the time of the assignment. This would include the timely filing of Form IT-WH.

It is important to note that this provision only applies to assignable credits amongst affiliated entities - it does not apply to transferrable credits.

This specific provision applies to credits assigned in tax years beginning on or after January 1, 2018.

Please note, the information contained in this alert is a summary of some of the more notable Georgia income tax legislation in 2018. A complete review of the changes in tax law should be performed taking into consideration the taxpayer’s specific set of facts, prior to making any decisions impacting a Georgia taxpayer’s income tax situation.

For questions on the information contained in this alert please contact Jack Small or your tax advisor.

Contacts

Jack Small, Director, State & Local Tax
jack.small@dhg.com



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