In 2012, the Georgia Legislature created the Georgia Tax Tribunal, a specialized court to hear tax disputes between taxpayers and the Georgia Department of Revenue (DOR). Hearings are before one judge with no jury trials. The creation of the Tribunal was touted as “business friendly” because appeals from DOR assessments would now be heard by an independent judge instead of an appeals officer within the DOR, and the process would be more efficient and transparent. Bypassing DOR and taking a case to the Tribunal does not necessarily mean that taxpayers win, however, as two recent cases show.
Taxpayers Lose Jobs Credit and Sales Tax Disputes Before Georgia Tax Tribunal
Jobs Credit Elections
In the first case, Sewon America, Inc. v. Ga. Dept. of Rev., a producer of automobile parts realized that there would have been greater tax benefit if they had claimed the Georgia Qualified Jobs Tax Credits (QJTC) instead of the Jobs Tax Credit (JTCs). The jobs they had added would qualify for either credit.
What’s the difference between the credits? The Jobs Tax Credit allows a write-off for creating jobs in certain business sectors in underdeveloped areas of the State, while the Quality Jobs Tax Credit requires that the jobs created pay higher-than-average wages. Although an employer can claim both credits on the same tax return, the employer may not claim two different credits for the same job.
The reason Sewon wanted to switch credits was because it was not able to use its entire JTC for tax years 2010 through 2014 because it had net operating losses and no income tax liability. Sewon tried to switch to the QJTC because that credit can be used against a business’s withholding liability.
Sewon is just the kind of employer that the Georgia legislature is trying to incentivize with these credits. Sewon reported that it created 754 new jobs during the period from 2009 through 2013 at its plant in Troup County. Sewon located there, in LaGrange, Georgia, in conjunction with KIA Georgia’s automobile manufacturing plant nearby.
Sewon tried to amend its 2013 and 2014 corporate returns to retroactively elect the QJTC instead of the JTC. The Georgia DOR ruled that once a taxpayer elects one of the credits, that election cannot be changed later. Sewon was challenging this ruling in the Tribunal. Tribunal Chief Judge Lawrence E. O’Neal, Jr., held for the DOR, finding that employers cannot switch back and forth between credits for the same underlying jobs.
Judge O’Neal also found that, whether or not it was fair or wise, the Georgia DOR had the authority to prohibit switching between credits in its regulations and rulings. The take-away for employers is that careful consideration must be given to which credit you take at the outset, and income projections may be key to determining if the JTC can be used in later years.
Sales and Use Tax Nexus for Scholastic Books
Scholastic books are part of everyone’s childhood, but nostalgia did not stop the Georgia Tax Tribunal judge from ruling against this long-established company in a sales tax case involving its famous products. In the case of Scholastic Books Clubs, Inc. v. Ga. Dept. of Rev. , the Georgia Tax Tribunal denied the Missouri publishing company’s appeal of $3.3 million in sales taxes and penalties assessed by the State of Georgia on its book sales through Georgia schools.
Scholastic Book Clubs, Inc., (SBC) sells books and other educational materials within the state of Georgia by mail order and via the Internet to Georgia educators, students, and parents. The Tribunal held that SBC is a “dealer” within the scope of the sale and use tax statute because it regularly and systematically avails itself of the Georgia consumer market. The company relied on Georgia educators and parents to establish and maintain this market. Finally, SBC’s parent company, Scholastic Inc., has a warehouse and distribution center in Georgia, making it fair game for sales and use tax imposition. Taken together, all of these facts justified a finding of SBC’s having a “substantial nexus” in Georgia, the standard required by the U.S. Constitution’s Commerce Clause for permitting state taxation of remote sellers.
The Scholastic case illustrates the more aggressive posture the State of Georgia has been taking in finding ways to justify taxing of out-of-state sellers on in-state sales. The battle is being fought on several fronts, including in the courts and in the legislature. Just this year, Georgia House Bill 61 was introduced, which would have forced online retailers with at least $250,000 or 200 sales a year in Georgia to either collect and remit to the state sales taxes on purchases or send “tax due” notices each year to customers. Although it passed the Georgia House, it did not make it through the Georgia Senate this year. Watch for further action in the legislature next year.