Georgia Adopts New Rural Zone Tax Credit Regulation

Georgia finalized regulations for a new income tax credit aimed at incentivizing certain businesses and real estate investors to revitalize designated rural areas.

By Jess Johannesen, SALT Manager

On May 8, 2017, Governor Nathan Deal signed House Bill 73 which created the new Georgia Rural Zone Tax Credit, effective Jan. 1, 2018.  The credit is automatically repealed on Dec. 31, 2027, unless the legislature reauthorizes it.  On May 18, 2018, the Georgia Department of Revenue adopted a regulation that addresses this new tax credit.1  The Rural Zone program promotes the revitalization of certain designated rural areas by providing a combination of income tax incentives including: (1) a jobs tax credit for certified entities, (2) an investment property tax credit for certified investors, and (3) a property rehabilitation tax credit for both certified entities and certified investors.

A “certified entity” is an eligible business (i.e., a business primarily engaged in providing professional services or retailing merchandise) that (i) establishes a new location in a revitalization zone or expands its operation, (ii) creates at least two new full-time equivalent jobs in the taxable year, and (iii) is certified by the commissioner of community affairs as eligible to receive the credit.  A “certified investor” is an investor(s) that (i) acquires and develops real estate in a designated zone and (ii) is certified by the commissioner of community affairs as eligible to receive the credit.

Rural zones are designated by the Department of Community Affairs and the Department of Economic Development.  Up to 10 zones may be designated each year, and the zones have a 5-year designation period.  Nine communities have been designated as rural zones for Jan. 1, 2018 through Dec. 31, 2022:  Bainbridge, Commerce, Cornelia, Fitzgerald, Jonesboro, Nashville, Perry, Springfield, and Toccoa.2  Within these communities, certain parcels are approved for the Rural Zone Tax Credit incentives.

The job tax credit component of the Rural Zone Tax Credit provides a $2,000 credit to certified entities per new full-time equivalent job per year for up to five years.  Distinct from Georgia’s tier-based jobs tax credit, the Rural Zone jobs tax credit is available for retail and professional service businesses.  Also distinct from Georgia’s tier-based jobs tax credit, the Rural Zone jobs credit is based on full-time equivalent jobs based on 40-hour work weeks.  Therefore, certified entities within the designated rural zones may aggregate the hours of both full-time and part-time jobs to determine the jobs tax credit, whereas part-time employees are excluded from the tier-based jobs tax credit.  This tax credit is limited to $40,000 per year.

The investment tax credit component of the Rural Zone Tax Credit provides a credit to certified investors equal to 25 percent of the purchase price of investment property that is developed in the rural zone.  The credit cannot exceed $125,000.  An eligible business that creates a minimum of two full-time equivalent jobs must be located in the investment property.  The certified investor, however, claims the credit over five equal installments over five tax years, beginning with the year the property is placed in service (and assuming that the eligible business located in the investment property maintains two full-time equivalent jobs over such period).  The total credit must be taken within the first seven years in cases where the job requirement is not met in consecutive years.

The rehabilitation tax credit component of the Rural Zone Tax Credit provides a credit to certified entities or certified investors equal to 30 percent of qualified rehabilitation costs which include labor and materials costs.  The credit cannot exceed $150,000, and it is claimed in three equal installments over three tax years, beginning with the year the property is placed into service.  Similarly, the certified entity/certified investor (or in the case of a certified investor, an eligible business located in the investment property) must maintain at least two full-time equivalent jobs for each year in which the tax credit is claimed.  The rehabilitated property must meet standards determined by the Georgia Historic Preservation Division, and the same costs cannot be used to claim Georgia’s rehabilitated historic property tax credit.

As your business looks to grow and expand, consider these new rural zone incentives targeted at revitalizing rural downtowns.  Each year, up to 10 new rural zones can be designated, but no more than 50 revitalization zones will be in existence at any given time.  The Rural Zone Tax Credits can offset up to 100 percent of your Georgia income tax liability, with any remainder having a 10-year carry forward life.  However, this tax credit is not transferable and cannot be elected against Georgia withholding taxes.  In addition, any jobs created or connected to any project claimed under this credit are not eligible for any other jobs tax credits.

Aprio’s SALT team helps Georgia taxpayers claim millions of dollars in state tax credits.  We can assist your business understand how to qualify for the credit and will make sure that all of the substantive and procedural tax credit requirements are satisfied.  Finally, we will calculate your tax credit and complete the required filings to ensure that the maximum benefit is returned to your company.   We constantly monitor these and other important state and local tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jess Johannesen, SALT manager, at jess.johannesen@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the May 2018 SALT Newsletter.

[1] Ga. Comp. Rule & Regs. 560-7-8-.62.

2 Dept. of Community Affairs: Nine Communities Designated as Rural Zones; December 29, 2017.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.