In order to encourage companies to invest in R&D, and to reward them for doing so, Federal and Georgia tax rules provide what can be very significant tax credits (dollar for dollar reduction in tax liability).
On February 7, 2018, the Georgia Department of Revenue released revised regulations on Rule 560-7-8-.42 of the Rules and Regulations of the State of Georgia. These revised regulations, regarding certain filing procedures of the Georgia Form IT-WH Notice of Intent, affect all companies eligible to use Georgia Research Tax Credits to offset their Georgia payroll tax withholding liabilities.
Why this matters to you:
The revised regulations present eligible businesses a more accessible and streamlined process for electing to apply their excess research tax credits against payroll tax withholding.
The revised regulations contain three major changes to the process that a business enterprise must follow when electing to apply their excess credits against their quarterly or monthly withholding payments:
- The Form IT-WH must now be filed by the business enterprise within 30 days after the due date of the Georgia income tax return (including extensions) or within 30 days after the filing of a timely filed Georgia income tax return, whichever occurs first.
- The Form IT-WH may only be filed electronically through the Georgia Tax Center.
- The Georgia Department of Revenue now has 120 days from the receipt of the company’s Form IT-WH to make the determination of the amount of credit eligible to be used against a taxpayer’s payroll withholding.
The revised regulations are a great improvement over the prior rules, which required businesses to make the election and file form IT-WH 30 days prior to filing tax returns (including extensions). This created a situation whereby eligible business enterprises with eligible R&D tax credits where denied the use of their R&D tax credit towards offsetting payroll taxes.
The new amended regulations will be applicable to taxable years beginning on or after January 1, 2017.
Research and development (R&D) tax credits are a valuable benefit for companies developing new products and services in Georgia.
R&D tax credits are available to any business enterprise that increases its qualified research spending. Brand new companies, existing companies embarking on R&D for the first time, established companies expanding their R&D budget – all are eligible for R&D tax credits.
A tax credit is allowed for a business enterprise that has qualified research expenses in Georgia in a taxable year exceeding a base amount; 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.
Defined in GA 560-7-8.46, the term “business enterprise” means any corporation, partnership, LLC, sole proprietorship, or other business entity, or the headquarters of such business entity, that is engaged in manufacturing, warehousing and distribution, processing, telecommunications, broadcasting, tourism, or research and development. The term “business enterprise” excludes all child care businesses and retail businesses, except as referenced in O.C.G.A. § 48-7-40.22.
The Georgia payroll tax withholding offset is available to all business enterprises whose research tax credit exceeds 50 percent of the company’s remaining Georgia net income tax liability after all other credits have been applied. Georgia has a special rule whereby all business enterprises (but especially for an LLC or S-Corp) can elect to retain some or all of its R&D tax credit (at the entity level for the pass-throughs) and apply against Georgia taxes withheld from employee pay. This election has the effect of converting a deferred income tax benefit to an “above the line” financial statement benefit. However, this election must be made at least 30 days before you file the Georgia income tax return for that year.
About the Author
Tommy Zavieh is a tax principal and leads FD’s National R&D tax credit practice. He has over 20 years of engineering, consulting and R&D tax credit experience. Tommy has helped organizations in the U.S. and foreign jurisdictions realize significant tax credits.