Ga. Comp. R. & Regs. R. 560-7-8-.42 - Tax Credit for Qualified Research Expenses
(1)
Purpose. This rule provides
guidance concerning the implementation and administration of the income tax
credit under O.C.G.A. §
48-7-40.12.
(2)
Definitions. As used in this
regulation:
(a)
Base Amount. The
term "base amount" means the product of a business enterprise's Georgia gross
receipts in the current taxable year and the average of the ratios of its
aggregate qualified research expenses to Georgia gross receipts for the
preceding three taxable years or 0.300, whichever is less; provided, however,
that a business enterprise need not have had a positive taxable net income for
the preceding three taxable years in order to claim the credit. "Georgia gross
receipts" shall be the numerator of the gross receipts factor provided in
subsection (d) of O.C.G.A. §
48-7-31. If a business enterprise
had no Georgia gross receipts during any one or more of the three preceding tax
years, the base amount shall be the product of the current year Georgia gross
receipts and 0.300.
(b)
Business enterprise. The term "business enterprise" shall have the
same meaning as in Department of Revenue Regulation
560-7-8-.46.
(c)
Qualified Research Expenses.
The term "qualified research expenses" means qualified research expenses for
any business enterprise as that term is defined in Section 41 of the Internal
Revenue Code of 1986, as amended, except that all wages paid and all purchases
of services and supplies must be for research conducted within the State of
Georgia.
(3)
Establishing Eligibility for the Credit. A business enterprise
that has qualified research expenses in Georgia in a taxable year exceeding a
base amount, and for the same taxable year claims and is allowed a research
credit under Section 41 of the Internal Revenue Code of 1986, as amended shall
be eligible for the credit.
(4)
Credit Amount. A business enterprise that has established
eligibility for the research tax credit shall be allowed a tax credit equal to
10 percent of the excess of the qualified research expenses over the base
amount. The credit taken in any one taxable year shall not exceed 50 percent of
the business enterprise's remaining Georgia net income tax liability after all
other credits have been applied.
(5)
Claiming the Credit. For a
business enterprise to claim the research tax credit, the business enterprise
must submit Form IT-RD and Federal Form 6765, from the entity generating the
credit, with its Georgia income tax return for each tax year in which the
qualified research expenses were incurred.
(a)
Withholding tax. A business enterprise whose credit amount exceeds
50 percent of the business enterprise's remaining Georgia net income tax
liability after all other credits have been applied may elect to take the
excess credit as a credit against such business enterprise's quarterly or
monthly withholding payments under Code Section
48-7-103. The withholding tax
benefit may only be applied against the withholding tax account used by the
business enterprise for payroll. In the event the business enterprise is a
single member limited liability company that is disregarded for income tax
purposes, the withholding tax benefit may only be applied against the
withholding tax liability that is attributable to wages paid by the single
member limited liability company. A business enterprise must notify the
commissioner, in the manner specified in subparagraph (5)(a)1., below, for any
tax year for which they are making an irrevocable election to take all or a
part of the credit against the quarterly or monthly withholding tax payment for
such business enterprise. When this election is made, the excess research tax
credit will not pass through to the shareholders, partners, or members of the
business enterprise if the business enterprise is a pass-through entity.
1. Notice of Intent. To claim any excess tax
credit not used on the income tax return against the business enterprise's
withholding tax liability, the business enterprise must file Revenue Form IT-WH
Notice of Intent through the Georgia Tax Center within the
three-year statute of limitations period after the due date of the Georgia
income tax return (including extensions). Failure to file this form as provided
in this subparagraph will result in disallowance of the withholding tax
benefit. Such irrevocable election may only be made one time with respect to
each tax year for which the credit is earned for such tax year, for all or part
of the excess tax credit remaining at the time of the election. However, in the
case of a credit which is earned in more than one taxable year, the election to
claim the withholding credit will be available for the credit earned in such
subsequent year.
2. Review Period.
The Department of Revenue has one hundred and twenty (120) days from the date
the applicable Form IT-WH under subparagraph (5)(a)1. of this regulation is
received to review the credit and make a determination of the amount eligible
to be used against withholding tax.
3. Letter of Eligibility. Once the review is
completed, a letter will be sent to the business enterprise stating the tax
credit amount which may be applied against withholding and when the business
enterprise may begin to claim the tax credit against withholding tax. The
Department of Revenue shall treat this amount as a credit against future
withholding tax payments and will not refund any previous withholding
payments.
(6)
Carryforward. Any credit which is claimed but not used in a
taxable year shall be allowed to be carried forward for the number of years
authorized under O.C.G.A. §
48-7-40.12 from the close of the
taxable year in which the qualified research expenses were made.
(7)
Pass-through Entities. When
the business enterprise is a pass-through entity, and has no income tax
liability of its own, the tax credits will pass to its members, shareholders,
or partners based on the year ending profit/loss percentage and the limitations
of this regulation. The credit forms will initially be filed with the tax
return of the business enterprise to establish the amount of the credit
available for pass through. The credit will then pass through to its
shareholders, members, or partners to be applied against the tax liability on
their income tax returns. The shareholders, members, or partners may not claim
any excess research tax credit against their withholding tax liabilities. The
credits are available for use as a credit by the shareholders, members, or
partners for their tax year in which the income tax year of the pass-through
entity ends. For example: A partnership earns the credit for its tax year
ending January 31, 2018. The partnership passes the credit to a calendar year
partner. The credit is available for use by the partner beginning with the
calendar 2018 tax year.
(8)
Effective Date. This regulation as amended shall be applicable to
taxable years beginning on or after January 1, 2025. Taxable years beginning
before January 1, 2025 will be governed by the regulations of Chapter 560-7 as
they exist before January 1, 2025 in the same manner as if the amendments set
forth in this regulation had not been promulgated.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
(1) Purpose. This rule provides guidance concerning the implementation and administration of the income tax credit under O.C.G.A. § 48-7-40.12.
(2) Definitions. As used in this regulation:
(a) Base Amount. The term "base amount" means the product of a business enterprise's Georgia gross receipts in the current taxable year and the average of the ratios of its aggregate qualified research expenses to Georgia gross receipts for the preceding three taxable years or 0.300, whichever is less; provided, however, that a business enterprise need not have had a positive taxable net income for the preceding three taxable years in order to claim the credit. "Georgia gross receipts" shall be the numerator of the gross receipts factor provided in subsection (d) of O.C.G.A. § 48-7-31. If a business enterprise had no Georgia gross receipts during any one or more of the three preceding tax years, the base amount shall be the product of the current year Georgia gross receipts and 0.300.
(b) Business enterprise. The term "business enterprise" shall have the same meaning as in Revenue Regulation 560-7-8-.46.
(c) Qualified Research Expenses. The term "qualified research expenses" means qualified research expenses for any business enterprise as that term is defined in Section 41 of the Internal Revenue Code of 1986, as amended, except that all wages paid and all purchases of services and supplies must be for research conducted within the State of Georgia.
(3) Establishing Eligibility for the Credit. A business enterprise that has qualified research expenses in Georgia in a taxable year exceeding a base amount, and for the same taxable year claims and is allowed a research credit under Section 41 of the Internal Revenue Code of 1986, as amended shall be eligible for the credit.
(4) Credit Amount. A business enterprise that has established eligibility for the research tax credit shall be allowed a tax credit equal to 10 percent of the excess of the qualified research expenses over the base amount. The credit taken in any one taxable year shall not exceed 50 percent of the business enterprise's remaining Georgia net income tax liability after all other credits have been applied.
(5) Claiming the Credit . For a business enterprise to claim the research tax credit, the business enterprise must submit Form IT-RD and Federal Form 6765, from the entity generating the credit, with its Georgia income tax return for each tax year in which the qualified research expenses were incurred.
(a) Withholding tax . A business enterprise whose credit amount exceeds 50 percent of the business enterprise's remaining Georgia net income tax liability after all other credits have been applied may elect to take the excess credit as a credit against such business enterprise's quarterly or monthly withholding payments under Code Section 48-7-103. The withholding tax benefit may only be applied against the withholding tax account used by the business enterprise for payroll. In the event the business enterprise is a single member limited liability company that is disregarded for income tax purposes, the withholding tax benefit may only be applied against the withholding tax liability that is attributable to wages paid by the single member limited liability company. A business enterprise must notify the commissioner each year of their irrevocable election to take all or a part of the credit against the quarterly or monthly withholding tax payment for such business enterprise. When this election is made, the excess research tax credit will not pass through to the shareholders, partners, or members of the business enterprise if the business enterprise is a pass-through entity.
1. Notice of Intent . To claim any excess tax credit not used on the income tax return against the business enterprise's withholding tax liability, the business enterprise must file Revenue Form IT-WH Notice of Intent through the Georgia Tax Center within thirty (30) days after the due date of the Georgia income tax return (including extensions) or within thirty (30) days after the filing of a timely filed Georgia income tax return, whichever occurs first. Failure to file this form as provided in this subparagraph will result in disallowance of the withholding tax benefit.
2. Review Period . The Department of Revenue has one hundred and twenty (120) days from the date the applicable Form IT-WH under subparagraph (5)(a)1. of this regulation is received to review the credit and make a determination of the amount eligible to be used against withholding tax .
3. Letter of Eligibility . Once the review is completed, a letter will be sent to the business enterprise stating the tax credit amount which may be applied against withholding and when the business enterprise may begin to claim the tax credit against withholding tax . The Department of Revenue shall treat this amount as a credit against future withholding tax payments and will not refund any previous withholding payments.
(6) Carry Forward . Any credit which is claimed but not used in a taxable year shall be allowed to be carried forward for ten years from the close of the taxable year in which the qualified research expenses were made.
(7) Pass-through Entities . When the business enterprise is a pass-through entity, and has no income tax liability of its own, the tax credits will pass to its members, shareholders, or partners based on the year ending profit/loss percentage and the limitations of this regulation. The credit forms will initially be filed with the tax return of the business enterprise to establish the amount of the credit available for pass through. The credit will then pass through to its shareholders, members, or partners to be applied against the tax liability on their income tax returns. The shareholders, members, or partners may not claim any excess research tax credit against their withholding tax liabilities. The credits are available for use as a credit by the shareholders, members, or partners for their tax year in which the income tax year of the pass-through entity ends. For example: A partnership earns the credit for its tax year ending January 31, 2018. The partnership passes the credit to a calendar year partner. The credit is available for use by the partner beginning with the calendar 2018 tax year.
(8) Effective Date . This regulation as amended shall be applicable to taxable years beginning on or after January 1, 2017. Taxable years beginning before January 1, 2017 will be governed by the regulations of Chapter 560-7 as they exist before January 1, 2017 in the same manner as if the amendments set forth in this regulation had not been promulgated.