With the economy recovering in some areas, companies are starting to re-invest in their operations. These investments (such as software upgrades and head count increases) may qualify for state tax credits. Unfortunately, some companies may not have the income tax liability capacities for these tax credits in the near term. But in many cases, state tax credits earned can be carried forward (up to 10 years) and may show up as Deferred Tax Assets on the balance sheet.
Depending on a company’s tax structure, there may be benefits to these carried forward tax credits:
- C Corporation: the tax credits will increase the company’s assets on the balance sheet. This will be beneficial to investors and bankers that consider assets for valuation purposes. In addition, acquiring companies may be able to leverage these tax credits in the future.
- Pass-through (such as S Corporation , LLC, LLP, and others): individual equity participants could benefit from personal “deferred tax assets” that could be utilized to off-set future income tax liabilities (i.e., spouse income increases, their business is sold, and other items). Include this in discussions with the client’s wealth management team.
So remember to reach out to your clients to discuss their company and personal asset planning. A deferred tax credit today may cover a tax liability tomorrow!
We have heard several issues related to snail mailing Georgia amended income tax returns to DOR, especially when tax credits have been added. Make sure you send it to the correct address (AND use a USPS CertifiedMail Receipt form).
Here are the mailing addresses:
Georgia Department of Revenue
Form 500X (individual):
P.O. Box 740318
Atlanta, GA 30374-0318
Form 600 (C corporation):
P.O. Box 740397
Atlanta, GA 30374-0397
Form 600S (S corporation):
P.O. Box 740391
Atlanta, GA 30374-0391
Form 700 (partnership):
P.O. Box 740315
Atlanta, GA 30374-0315
(Click here for details)
Good luck with tax season!
With the March 15 tax filing date approaching, you may be facing a dilemma for a pass-through entity, especially if your client wants to file shareholder individual returns by 4/15. What if they plan to submit tax credits but may not have the tax credit documents completed on time? Here are some options to consider:
- Extend the state corporate income tax return (only need to extend state, not federal), then file individual returns on 4/15
- File the state corporate income tax return by 3/15 without tax credits, then amend the state corporate return for tax credits applied, distribute amended K-1s, and file individual tax returns on time by 4/15
Tax planning with your client really pays off in keeping your clients happy!
We recently attended the annual Institute for Professionals in Taxation One-Day Georgia Tax Seminar. Here are some highlights:
- Commissioner Doug MacGinnitie gave an overview of DOR’s operations and issues. Interesting comments included “We measure wait times every day,” and “Our job is NOT to maximize the state’s revenue.”
- Delays in processing tax returns (especially amended returns that include refunds such as tax credits) – due to the new $40M+ Integrated Tax System (ITS), the processing center relocation, their move to electronic filing, and new fraud detection methods. Note: so far this year, they have blocked over 162,000 returns for almost $100M of fraudulent refunds!
- New tax court – the Georgia Tax Tribunal will start in January 2013 to handle most state tax litigation. Where did they come up with that name?!
- Denied tax credits – many tax credits that require pre-approval are being denied due to missing documentation. For example, the Qualified Education Expense tax credit had over 6,000 returns with over $21M denied in 2011.
- Sales tax exemptions – new manufacturing and agricultural energy exemptions will start in 2013. Note: a qualified agricultural producer such as animal food manufacturing or poultry processing could qualify as either a manufacturer or agricultural business.
For a DOR summary of the tax legislation, click here.
There has been a lot of discussion about deepening of the Savannah port and the large economic impact it will have on our economy (click here for summary report ). This increased activity may provide opportunity for your clients to utilize the Port Activity Tax Credit.
Here is an overview:
- Your client must be utilizing the Job Tax Credit or the Investment Tax Credit.
- They have to increase their shipments (measured in net tons, containers, or twenty-foot equivalent units) through a Georgia port (such as Savannah or Brunswick).
- The client must hold title to the item (that is, their name must be on the bill of lading) when it is imported or exported through the port.
- This tax credit provides a bonus on top of the Job Tax Credit (additional $1,250 per job) or the Investment Tax Credit (increases the tax credit to 5%).
In summary, the Port Activity Tax Credit can be an “icing on the cake” bonus, but it may be confusing to determine if qualifications have been met. Your clients may be planning expansions to use Georgia ports and may need your help in identifying their potential net after tax benefit of the credit.
Georgia’s Quality Jobs Tax Credit is for companies that add 50 or more new higher-paying jobs in a 12 month period. Unlike the regular Job Tax Credit, which is for overall headcount increase (that is, net new jobs), this tax credit is for specific individuals hired and their individual pay rates.
Here is an overview:
- The individual pay rates must be at least 10% higher than the county average (for county averages click here)
- The tax credit ranges from $2,500 to $5,000 per job, depending on the wage level
- It can be taken every year for 5 years — if a company hires and maintains 50 qualified individuals that meet the $2,500 tax credit level and keeps them for 5 years, the tax credit will be $625,000 (50 jobs x $2,500/job x 5 years)
- The tax credit can be applied to one prior amended year and has a10 year carry forward
- It can be utilized against Georgia income taxes (up to 100%) or Georgia payroll withholding taxes
- Jobs that don’t meet the higher paying job threshold can be counted towards the regular Job Tax Credit
- Form Georgia form IT-QJ must be submitted with the client’s state income tax return (to download form click here)
- For details, see DOR regulations (download click here).
Do you have a client or prospect that plans to add jobs in Georgia? Let them know they have some great options as they finalize their plans!
Georgia DOR will be holding three tax credit-related hearings in August:
- August 2, 10:00 AM — Proposed Amendment to Rule 560-7-8-.42 “Tax Credit for Qualified Research Expenses.” Reflects significant changes enacted in the 2012 Session and provides detailed guidance for your clients seeking credits for qualified research expenses.
- August 9, 10:00 AM — Proposed Amendment to Rule 560-7-8-.51 “Quality Jobs Tax Credit.” Explains and clarifies changes enacted in 2012 Session. Definitely check this out for your clients with job increases of 50 or more.
- August 13, 10:00 AM — Proposed Amendment to Rule 560-7-8-.36 “Job Tax Credit Description and Definitions.” Clarifies 2012 change of Tier 1 threshold from 5 to 2 jobs, increases Withholding Credit DOR review period from 90 to 120 days. Check this out especially for your clients with small increases (2 or more jobs!) in Tier 1 counties.
All hearings will be held at DOR Headquarters, 1800 Century Blvd. NE, Atlanta, GA 30345. Click here for link to notices.
Although we don’t have any details, we recently learned from DOR’sBeverly Bennett that there will be a new BEST tax credit group to handle your credit questions and issues. Beverly went on to say that “Unfortunately, there is no main contact in the BEST credit group, but the supervisor is Monique Williams. I must warn you that she is swamped at the moment but very helpful.”
We will keep you updated as DOR’s support organization evolves!
We recently attended the annual IPT Institute for Professionals in Taxation (click here) One-Day Georgia Tax Seminar. It was a great opportunity to meet the new DOR commissioner Doug MacGinnitie and his team. Here are some highlights:
Breath of fresh air – The new commissioner emphasized that his role is to help taxpayers comply with the laws of Georgia. Any changes in public policies or laws should be addressed by the Georgia Legislature, not by his department!
Tax Credits –
- Conservation tax credits – will be re-sellable (HB 346)
- Energy tax credit – increase annual cap from $2M to $5M & extended sunset to 2014 (HB 346 )
- Education tax credit – the cap will be adjusted for inflation and reduced the approval processing requirements (HB 325)
Wrap up – the new commissioner’s goals are to improve customer service, increase efficiency by leveraging technology and minimize the “tax gap” (i.e., what is owed vs. what is paid). For a DOR summary of the 2011 legislation, click here.
Georgia’s DOR is in the process of converting to a new individual income tax return system. In case you hadn’t noticed, this has delayed return processing and refunds. They told us that since many of their employees are having to help get the systems ready, everything else in the department has slowed down. As we all know with any new system, it takes time and patience.
One thing you can do to help with processing your clients’ tax returns (especially with tax credits) is to attach all of the equity owners’ K-1s to the corporate return and the individual equity owner’s K-1 to their individual return. This will help DOR follow the tax credit $$ from the corporate return to the individual returns. Looks like this is a case where more data is good (!!).
DOR’s goal is FASTER. FRIENDLIER. EASIER. If we all can help them achieve this goal, your clients will benefit.
November 4, 2011 – Georgia Medical Group Management Association (MGMA) 2011 Governmental/Third Party Payer Forum. Stop by our booth (Click here).
November 18, 2011 – Institute for Professionals in Taxation (IPT) Georgia One-Day Tax Seminar. This will be a great session to hear the new DOR commissioner and talk with DOR policy folks. Hope to see you there. (to download brochure click here).
We recently attended the annual IPT Institute for Professionals in Taxation (click here) One-Day Georgia Tax Seminar.
Appearing most likely for the last time as Commissioner, Bart Graham welcomed attendees and also honored Deputy Commissioner Ed Many on his retirement. We learned about current tax cases from Warren Calvert of the Attorney General’s office and also heard presentations on property taxes, income taxes, and the new Streamlined Sales Tax program.
A.D. Frazier, chairman of The Special Council on Tax Reform and Fairness for Georgians, discussed his group’s efforts and plans to present their recommendations to the 2011 legislature in January. He was entertaining but basically didn’t reveal anything new.
Since there were not many tax law changes in 2010, the seminar was fairy ho-hum. But with the looming budget crisis, the Special Council fallout, and who-knows-what-else from the 2011 legislative session, next year’s IPT seminar could be a different story!