Georgia State R&D Tax Credit
The R&D tax credit is a valuable benefit for companies developing new products and services in Georgia. The R&D tax credit is available to any company that increases its qualified research spending. New companies, start-ups, existing and established companies embarking on R&D for the first time or expanding their R&D budget are all eligible for the R&D Tax Credit.
A business enterprise that has qualified research expenses in Georgia in a taxable year exceeding a base amount is eligible for a tax credit provided the corporation claims and is allowed a federal research credit under IRC § 41, except that such expenses must be for research conducted within Georgia. The definition of “qualified research expenses” is the same as that used for federal purposes.
Businesses engaged in manufacturing, warehousing and distribution, processing, telecommunications, tourism, and research and development are eligible for the credit.
GA R&D Credit Summary
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The tax credit is equal to 10% of the excess over a base amount consisting of the product of the business enterprise’s Georgia gross receipts in the current taxable year and either the average of the ratios of its aggregate qualified research expenses to Georgia gross receipts for the preceding three taxable years or 30%, whichever is less
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The base amount of a business that has no Georgia gross receipts during any one or more of the three preceding tax years will be determined by multiplying the current year Georgia gross receipts by 30%
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The credit can be used to offset up to 50% of net Georgia income tax liability, after all other credits have been applied.
R&D Tax Credit Refund
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New legislation now allows the Georgia R&D tax credit to be used against payroll withholding taxes in Georgia. Now if the company is in net operating losses, they can use the credit against payroll tax starting in 2013. A taxpayer need not have had a positive taxable net income for the preceding three taxable years in order to claim the credit.
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Another change is that if the company has exhausted all of the other credits against 50% of their taxable income and cannot use the R&D credit, they can use the credit starting in 2013 through payroll withholding tax reductions.
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Other tax credits affected are: jobs credit, film credit, and the clean energy Property tax credit. They can also be used against payroll withholding taxes beginning in 2013.
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Any qualified research expense credit earned before January 1, 2012 and any attributed credit carry-forward will be governed under Ga. Code Ann. §48-7-40.12 as in effect for the taxable year when the credit was earned, including but not limited to determining if such credit or any credit carry-forward may be taken as a credit against the taxpayer’s quarterly or monthly wage withholding payments under Ga. Code Ann. §48-7-103
How does a company claim withholding tax credits?
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Withholding tax credits require multiple steps to claim. First, Form IT-WH must be filed at least 30 days prior to the earlier of the date the tax return will be filed on which the tax credits will be claimed or the due date of the return.
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For tax years beginning on or after January 1, 2017, the entity MUST file Revenue Form IT-WH Notice of Intent through the Georgia Tax Center within 30 days after the due date of the Georgia income tax return (including extensions) or within 30 days after the filing of a timely filed Georgia income tax return, whichever occurs first.
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Paper filings will no longer be allowed. Failure to file this form as provided will result in disallowance of the withholding tax benefit. However, in the case of a credit which is earned in more than one taxable year, the election to claim the withholding credit will be available for the credit earned in subsequent years.
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Then, the taxpayer claims the credits by filing their income tax return. Once the tax return is received, DOR will review the return and make a determination as to the amount of withholding credit that is available.
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Once a determination is made, a letter will be sent to the taxpayer notifying them of the amount of withholding credit allowed and when and how the credit may be claimed against future withholding payments.
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The company must wait to receive approval from the State to take advantage of this payroll tax withholding adjustment.
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NOTE: The withholding credit does not refund any taxes previously paid.
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Is there a limitation on the amount of job tax credit that may be claimed against withholding?
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Yes, the law limits the amount of credit which may be claimed against withholding by not allowing the Port Traffic Credit or Joint Development Authority credit amounts. If the company is claiming Port Traffic or Joint Development Authority amounts in addition to the Job Tax withholding credit, these amounts may only be applied against income tax liability.
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NOTE: In the case of a flow-through entity which makes an irrevocable election to claim the withholding credit, the amounts which may not be applied to withholding will be allowed to flow-through since they may not be applied against withholding.
Can credits be used in aggregate to offset 100% of the tax in certain circumstances?
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Yes. A taxpayer may apply the 50% limitation of one credit and the 50% limitation of another credit to offset up to 100% of the income tax liability.
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Please note, however, that some credits have certain requirements when used in this manner and may not allow for 100% offset of liability (i.e. research).
Eligible Entities: C-Corporation, S-Corporations, LLCs, Partnerships
Deadline for Tax Filing: Due with Georgia Tax Return
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To claim the credit, a company must submit Form IT-RD and Federal Form 6765 with its Georgia income tax return for each tax year in which the QREs were incurred.
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For a business enterprise to claim the research tax credit, the business enterprise must submit Form IT-RD
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To claim the excess credit credit against payroll withholding, see above.
Data Required to Compute Credit
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Claim Period Georgia Qualified R&D Expenses (QREs)
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Claim Period Georgia Gross Receipts
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QREs for Prior 3 Years
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Gross Receipts for Prior 3 Years
Credit Carryforward: Any unused R&D Tax Credit can be carried forward for up to 10 years.
Flow Through Entity
When the business enterprise is a pass-through entity, and has no income tax liability of its own, the tax credits will pass to its members, shareholders, or partners based on the year ending profit/loss percentage and the limitations of this regulation. The credit forms will initially be filed with the tax return of the business enterprise to establish the amount of the credit available for pass through. The credit will then pass through to its shareholders, members, or partners to be applied against the tax liability on their income tax returns. The shareholders, members, or partners may not claim any excess research tax credit against their withholding tax liabilities.
The credits are available for use as a credit by the shareholders, members, or partners for their tax year in which the income tax year of the pass-through entity ends. For example: A partnership earns the credit for its tax year ending January 31, 2013. The partnership passes the credit to a calendar year partner. The credit is available for use by the partner beginning with the calendar 2013 tax year.
Important Links and Forms: