The 2022 legislative period in Georgia included a number of subsequent tax laws. Our State & Local Tax Group highlights key findings.
- What happened: rate cuts and election consolidation
- What Failed: Revisions to film tax credits and sales taxes on electronically delivered software
- How these changes will affect individual and corporate taxpayers
Georgia’s 2022 legislative session has finally come to a close, with Gov. Brian Kemp signing off on a series of new tax laws passed by the Georgia General Assembly this spring. This year’s session was a big one for Georgia individual and corporate taxpayers because of both what passed (e.g., tax cuts and election consolidation) and what didn’t (e.g., major proposed revisions to film tax credits and sales taxes on electronically delivered software).
What happened: New legislation from this year’s session
Reduction of the individual income tax rate
The main tax bill of this past session for individual taxpayers was HB 1437, which authorizes a reduction in the income tax rate for individuals from the current annual rate of 5.75% to a rate of 4.99% by 2029. The tax rate cuts would be phased in over several years, subject to meeting certain income and tax collection thresholds.
Note that this tax rate reduction does not apply to corporations, which will continue to be taxed at 5.75%. Likewise, Pass-Through Entities (PTEs) that elect to be taxed at the corporate level will continue to be taxed at the higher rate of 5.75%. Owners of such PTEs must consider this discrepancy between individual and PTE tax rates as part of their decision tree as to whether to make the PTE election for the PTE’s Georgia source taxable income.
election consolidation
The General Assembly also passed HB 1058, which allows affiliated groups to file a consolidated statement for Georgia corporate tax purposes. Current law only allows taxpayers to file on a consolidated basis if the Treasury Department gives them permission to do so.
The consolidated elections are binding for five years and are effective for tax years beginning on or after January 1, 2023. While each entity included in the consolidated group continues to calculate its Georgia taxable income on a separate basis, the consolidated election would allow members of the group to offset net operating losses against taxable income of other group members (subject to the rules for losses incurred in years prior to consolidation accrued, referred to as “Separate Return Limit Year” or “SRLY” rules). Taxpayer groups already filing on a consolidated basis with Department approval will have the option to either continue filing on that basis or to end their approved consolidated basis and elect (or not) to file on a consolidated basis under the new law.
We expect the Treasury Department to update its Consolidated Electoral Ordinance to reflect the new law.
Sales tax exemption for data centers
House Bill 1291 extended the expiration of sales tax exemptions for the purchase of qualifying computing equipment for a high tech company (until December 31, 2028) and for high tech data centers that meet certain investment thresholds (until December 31, 2031).
While HB 1291 extended the validity of both exceptions, it also changed them. Beginning in 2024, the $15 million purchase threshold may only include taxable purchases or leases of computer equipment, and purchases of off-the-shelf computer software and computers or equipment issued to employees are specifically excluded. This change reverses the Georgia Court of Appeals’ decision in Choicepoint Services Inc. v. Graham1, in which the court found that the $15 million exemption limit could be met with non-taxable purchases of electronically delivered prepackaged software. Also beginning in 2024, a taxpayer claiming the exemption must pay taxes on 10% of the first $15 million of qualifying purchases.
HB 1291 also changed the job and investment creation requirements to qualify for the data center sales tax exemption:
- In counties with more than 50,000 residents, the demand for high-tech data center jobs increased from 20 to 25 new high-quality jobs.
- In counties with populations between 30,001 and 50,000, the need for job creation fell from 20 to 10 new high-quality jobs, and the minimum investment fell from $150 million to $75 million.
- In counties with a population of 30,000 or less, the need for job creation dropped from 20 to 5 new high-quality jobs, and the minimum investment dropped from $100 million to $25 million.
These changes reflect efforts to increase the attractiveness of locating data centers outside of the greater Atlanta area in smaller, more rural counties.
Appeals to higher courts
House Bill 916 changed the process for appealing decisions made by an administrative court (such as the Georgia Tax Tribunal) to a superior or state court by providing for a unified appeal process known as a “request for review.” One of the aims of this bill is to improve access to justice by allowing more appeals to be decided on a substantive basis rather than on complex procedural grounds.
For example, the bill revises Code Section 48-5-311, which relates to appeals against and against County Boards of Equalization decisions, to reflect the move from a “complaint notice” to the unified process of a “request for review.” The bill will come into effect for cases filed in higher courts on or after July 1, 2023. Three other notable changes:
- Supreme courts must hold hearings for non-jury property tax complaints within 30 days of filing (unless they are continued by the court for a period that does not exceed an additional 90 days).
- The County Board of Tax Assessors may, with taxpayer consent, conduct settlement conferences via audio or video conference call or other remote means of communication to reflect practical changes made during the pandemic.
- In a change favorable to taxpayers, the courts no longer have discretion to determine whether the value claimed by the tax adviser is “inappropriate” when the tax adviser relieves its burden of proof (i.e., proving its value assumptions and the validity of the proposed valuation by outweighing the Proofs). Rather, if the tribunal fails to meet this standard of precedence, the court “shall” find that the value asserted by the Disputes Committee is “inaccurate” and authorize the determination of the final value of the property.
Which didn’t pass – but may return to a legislature near you in future years
Taxation of digital goods and services
House Bill 594, as amended and carried over from the 2021 legislature, would have imposed a sales and use tax on certain digital goods and services. This bill would have changed the definition of tangible personal property to include “digital goods or services,” which were defined as “(A) specified digital products or pre-engineered computer software delivered electronically to an end user…; (B) a digital code; (C) Specified digital products or pre-engineered computer software, to which rights of access or use may be granted and possession of which is maintained by Seller or a third party…; or (D) any rights, licenses, or benefits provided electronically to enhance, maintain, update, renew, update, or enhance the benefits of certain digital products or prepackaged computer software.”
Confusingly, certain versions of the proposed HB 594 would not have amended OCGA § 48-8-3(91), leaving intact the sales/use tax exemption for the sale of pre-built software delivered to a buyer electronically or by “store.” and go.”
Although the bill failed this session, taxpayers should expect the General Assembly to consider another proposal to extend sales/use tax to digital goods and services at a future session. Taxpayers should be prepared to advocate meaningful and well-defined collection of this sales and use tax extension; In particular, corporate taxpayers should be prepared to seek a reminder of the concept embedded in the language of 2021, which intended to tax only sales to or use by a single end user, with an exception for software purchased for use in a business.
Film Tax Credits
Finally, the General Assembly considered, but contained no language in its Major Tax Reduction Act (HB 1437, discussed above) proposing either (1) to limit the number of film tax credits available on an annual basis; or (2) manufacturing companies are prevented from transferring the credits they earn to a buyer who has sufficient Georgia income tax liability to utilize the credits.
While the loan program’s role in creating and sustaining Georgia’s vast film industry is undisputed, some lawmakers remain reluctant to address the cost of any particular industry subsidy. Concerns about the credits were alleviated – but apparently not eliminated – by a new audit program that began in 2021 in response to claims that the film tax credit program was not adequately secured.
For now, the film tax credit program appears to be safe, but both the production industry and the Georgian taxpayers who have benefited from purchasing and using the credits to reduce their Georgia tax liabilities should remain vigilant for the value of the program in the coming years to use for years. In addition to the economic benefits of the industry’s presence, Atlanta residents—including these writers—love to see their neighborhoods, favorite restaurants, and local parks frequently on screen (although we’re often just a substitute for Chicago or Anytown, USA) are.
1Choicepoint Services Inc. v. Graham, 699 SE2d. 452 (2010).
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