During the 2023 legislative session, the Georgia General Assembly passed key tax legislation, including decoupling IRC Section 174, imposing a sales tax on certain digital goods, and revising eligibility for the pass-through entity tax election.
March 29, 2023 was “Sine Die,” or the 40th and final legislative day of the 2023 session. Both chambers of the General Assembly passed the following bills before the end of the session. These bills will now be sent to the governor, who can sign or veto the legislation within 40 days of the end of the legislative session. If the governor takes no action, the bill will become law after the 40-day deadline (May 8).
Income tax
SB 56 –This bill became an omnibus tax bill that contained several different provisions:
- Annual IRC Compliance Draft. Unless otherwise noted, the bill incorporates former HB 95 to update Georgia’s ongoing compliance with the IRC through tax year 2022.
- Georgia will decouple from IRC § 174 as of TY 2022. IRC §174 relates to certain research and experimental (R&D) expenses paid or incurred by the taxpayer during the taxable year. Under the provisions of the 2017 Tax Cuts & Jobs Act (TCJA), beginning in tax year 2022, taxpayers will no longer have the option to fully deduct their R&D expenses, but must capitalize and depreciate domestic R&D expenses over a five-year period. Under SB 56, Georgia would decouple from mandatory depreciation and follow pre-TCJA IRC Section 174, allowing deductibility of R&D expenses in the year in which the expenses are incurred for 2022 and subsequent tax years.
- Changes in income tax. The bill changes the income tax law in several respects. First, it relaxes the lookback conditions required to trigger annual reductions in the income tax rate from 5 to 3 years, which would result in an annual reduction in the income tax rate from 2025. Additionally, this will replace the personal exemption amounts in effect starting in 2025 for the 2024 tax year with new standard deductions. Additionally, the bill allows taxpayers to itemize deductions on their federal tax returns, either do so on their Georgia tax returns, or elect to take a new standard deduction. Finally, the bill provides a new $300 non-refundable personal income tax credit for filers who itemize deductions on their Georgia tax returns to offset the loss of personal tax exemption.
- Adds pandemics to the force majeure exception for employment tax credit eligibility. SB 56 revises the definition of “force majeure” to include a pandemic for projects certified on or after July 1, 2023. Projects of taxpayers that do not meet the credit requirements due to force majeure may apply to the Commissioner to adjust the qualification calculation for credits.
HB 412 – Pass-through entity choice for partnerships. This bill changes the income taxation of partnerships by removing the limitation that allows partnerships to be treated as a pass-through entity (“PTE”). Because Georgia originally created the PTE election, only partnerships where all members qualified to own an “S” corporation were allowed to participate in the PTE election. This bill repeals that restriction and opens the election to more pass-through entities, effective for the 2023 tax year.
HB 482 – Corporations exempt from income tax are excluded Tax credits for quality jobs. After the Fulton County Tax Court and Superior Court ruled that a nonprofit hospital could be eligible for high-value employment tax credits, the Department of Revenue sought to amend the statute to specifically exclude companies that do not pay Georgia corporate taxes from qualifying Job tax credits. As described in this legal alert, the original legislation was intended to retroactively “clarify” that these companies were not eligible for the loan. However, the passed bill clarifies that the change is only prospective and nonprofits may be eligible for tax credits for prior years.
HB 162 – Income tax refund. On March 14, 2023, Governor Kemp signed a law providing a one-time tax refund of $250 for individuals filing tax returns, $375 for heads of households, and $500 for married couples, as long as these are single income taxpayers Filed tax returns for both 2021 and 2022 taxable years.
VAT
SB 56 – Sales tax is levied on digital goods. This bill would impose a sales tax on the retail sale of certain digital products, other digital goods, or digital code that is sold to an end user for continued use, and the transaction is not contingent upon continued payment by the end user. Taxable items include digital books, magazines, music and video games that meet the right of perpetual use and conditional continued payment conditions. The bill would not apply to streaming or subscription services. Taxation of these items would take effect on January 1, 2024. Software delivered electronically, with the exception of certain digital products, remains exempt from sales tax.
HB 408 – Exceptions for projects of regional importance. This bill extends a sales tax exemption for tangible personal property used in construction projects that the economic development commissioner determines will have a significant regional impact through December 31, 2026.
SB 146 – Fuel tax on electric vehicle charging. This law will introduce a fuel tax on electric vehicle charging stations from January 1, 2025. The law does not impose a tax on charging private electric vehicles.
Bills that were not passed
Georgia’s legislative session lasts two years. Therefore, bills introduced during this 2023 session can still be passed during the 2024 session. Below are some notable bills that will remain in place for next year:
H.R. 598 – This bill is a constitutional amendment that would move the Georgia Tax Tribunal from an administrative tribunal of the executive branch to the judicial branch as a specialized court, similar to the relatively new statewide business tribunal. If passed during Georgia’s 2024 legislative session, the constitutional amendment would be a statewide ballot measure that would appear on the ballot in November 2024. The constitutional amendment would mean that laws could come into force if the constitutional amendment is adopted.
HB 191 – This bill increases the tax on tobacco and vaping products by 20 cents.
HB 581 – This bill would provide revised eligibility criteria and required content for annual economic analyzes relating to tax credits and exemptions. In 2021 the legislature decided SB6, which established a process for conducting economic analyzes of existing tax credits and exemptions. This review process continues unchanged between meetings.
Upcoming review of government incentives
Earlier this month, the governor, lieutenant governor and House speaker announced plans for a detailed review of all state tax incentives. The review is scheduled to take place between the 2023 and 2024 legislative periods. State officials have expressed their desire to analyze the economic impact of all income tax credits, sales and use tax exemptions and related economic incentives and potentially reduce or eliminate some, with the goal of further reducing the state income tax rate. Earlier this year, the Georgia Department of Audits & Accounts released several reports analyzing the economic impact and return on investment of many current popular state tax credits and exemptions created as a result of the Tax Credit Return on Investment Act of 2021.
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