Georgia Legislature Passes Several Tax Bills During Final Days of 2018 Session

By Jeff Glickman, SALT partner

The Georgia General Assembly adjourned its 2018 legislative session on March 29, but not before passing several key pieces of tax legislation.

Technical Correction for Treatment of Certain Foreign-Source Income

A few weeks ago, we wrote an article on HB 918, the state’s IRC conformity bill and response to federal tax reform.  In that article we stated the following with respect to the state’s treatment of Global Intangible Low-Taxed Income (GILTI):

• Global intangible low-taxed income (IRC §951A also referred to as GILTI) – Georgia’s subtraction modification for foreign-source dividends (including deemed dividends) is amended to specifically exclude GILTI. Therefore, GILTI will be included in Georgia income.  However, the bill does provide the deduction for GILTI under IRC §250.

On April 5, 2018, Governor Deal signed SB 328, which made a technical correction to HB 918 by decoupling from the federal treatment of GILTI.  In other words, for state corporate income tax purposes, GILTI is now essentially treated the same as Subpart F income, and is therefore allowed to be subtracted from a taxpayer’s federal taxable income to the extent included therein.

Sales Tax Economic Nexus

Just weeks away from the April 17 hearing in the U.S. Supreme Court case of South Dakota v. Wayfair, in which the Court will listen to arguments about whether the physical presence nexus requirement should be overturned, Georgia added itself to the growing list of states imposing sales tax economic nexus.  On March 29, the General Assembly passed HB 61 (this bill was originally introduced during the 2017 legislative session), and it was sent to Governor Deal on April 5, 2018, where it is awaiting his signature.

The bill requires the collection of sales/use tax from any retailer who, in the prior or current calendar year (i) has revenue exceeding $250,000 from or (ii) conducts at least 200 retail sales of tangible personal property delivered electronically or physically to a location within Georgia.

A couple of points are worth noting.  First, Georgia does not treat the sale of prewritten computer software delivered electronically as the sale of tangible personal property.  Therefore, these sales as well as any sales treated as services (e.g., custom software, even if delivered on a tangible medium) should not be counted towards the economic nexus thresholds.[1]  Second, because sales for resale are excluded from the definition of a “retail sale,” they should also not count towards the thresholds.[2]

If a retailer meeting the above requirements does not collect and remit Georgia sales/use tax, it must comply with the following tax disclosures:

• Notify each potential purchaser prior to completion of the sale transaction with the following statement: “Sales or use tax may be due to the State of Georgia on this purchase. Georgia law requires certain consumers to file a sales and use tax return remitting any unpaid taxes due to the State of Georgia.”
• On or before Jan. 31 of each year, each retailer must provide via first class mail (the exterior of the envelope must contain “IMPORTANT TAX DOCUMENT ENCLOSED”) a statement to each purchaser who purchased at least $500 from such retailer during the prior calendar year. The statement must contain the total amount purchased for that period, and, if available, an itemization of each purchase, including date, amount, category, and, if known, whether the purchase is exempt.  In addition, the statement must include the following language: “Sales or use tax may be due to the State of Georgia on the purchase(s) identified in this statement as Georgia taxes were not collected at the time of purchase.  Georgia law requires certain consumers to file a sales and use tax return remitting any unpaid taxes due to the State of Georgia.”
• On or before Jan. 31, file each statement in (2) with the Georgia Department of Revenue.

Penalties for failing to provide the disclosures are $5.00 for each failure of disclosure (1), $10.00 for each failure of disclosure (2), and $10.00 for each failure of disclosure (3).  If signed by Governor Deal, HB 61 would apply to all sales made on or after Jan. 1, 2019.  Since it is expected that the Supreme Court’s decision in Wayfair will be issued this summer, we should hopefully know prior to the bill’s effective date if these sales tax economic nexus standards are constitutional.

Notwithstanding the Court eventual decision in Wayfair, the use tax disclosure rules are very similar to those enacted by Colorado back in 2010 that were upheld by the 10^th Circuit Court of Appeals as we reported previously.

Expansion of the Rural Hospital Tax Credit

The legislature continues to expand the Rural Hospital Tax Credit.  Last year, SB 180 increased the amount of the rural hospital tax credit from 70 percent to 90 percent of the amount contributed and it doubled the maximum amount allowed from $2,500 to $5,000 for individuals and from $5,000 to $10,000 for married taxpayers filing a joint return.

This year, the General Assembly passed HB 769 on March 29, 2018, which was delivered to the governor on April 6, 2018, and is awaiting his signature.  This bill, effective July 1, 2018, further expands the Rural Hospital Tax Credit as follows:

• Increases the amount of the credit from 90 percent to 100 percent of the amount contributed;
• Delays the sunset date of the credit an additional two years to Dec. 31, 2021, and establishes the same $60 million statewide aggregate cap for those additional years; and,
• Beginning July 1 of each year, assuming the aggregate cap of $60 million has not been met, taxpayers may request additional credit beyond their individual cap as noted above (the bill also sets a $10,000 cap for owners of pass-through entities similar to the SSO tax credit).

In other words, if between Jan. 1 and June 30 an individual filer requested and received approval for a $5,000 tax credit (this is the most allowed an individual filer for that six-month period), then beginning July 1 (assuming the $60 million cap has not been met), that same individual may request an unlimited amount of additional tax credit. However, note that the tax credit is not refundable, and any unused credits can only be claimed for five years.  These credits continue to be very valuable considering the federal state and local deduction cap put in place as part of federal tax reform since they provide taxpayers an opportunity to convert nondeductible state tax payments into deductible charitable contributions for federal income tax purposes.

Sales Tax Exemption for High-Technology Data Center

On March 29, 2018, the General Assembly passed HB 696, which was also delivered to Governor Deal on April 5, 2018, and is awaiting his signature.  The bill establishes a sales tax exemption, for the period from July 1, 2018 through Dec. 31, 2028, for high-technology data center equipment that is incorporated into or used in a high-technology data center.

To qualify for the exemption, the high-technology data center must create at least 20 new quality jobs (as defined in the Quality Jobs Tax Credit statute) and must invest at least $100 million to $250 million (the exact investment threshold is based on the county where the data center is located).  These investments must be made over a consecutive seven-year period.

There are many procedural requirements, and taxpayers who do not meet the investment thresholds following the seven-year period must repay all exempted or refunded sales taxes, plus interest.  In addition, any taxpayer that claims this exemption is not entitled to claim any jobs-related income tax credits as well as many other income tax credits.

[1] See Ga. Comp. R. & Regs. 560-12-2-.111(3), (4).

[2] See O.C.G.A. § 48-8-2(31).