During the 2023 legislative session, the Georgia General Assembly passed significant tax legislation including decoupling from IRC § 174, imposing sales tax on certain digital goods, and revising eligibility for the pass-through entity tax election.
March 29, 2023 was “Sine Die” or the 40th and final legislative day of the 2023 session. Both chambers of the General Assembly passed the below bills before the end of the session. These bills are now transmitted to the Governor, who can sign or veto the legislation within 40 days after the end of the legislative session. If the Governor fails to take any action, the legislation becomes law upon the expiration of the 40-day period (May 8).
Income tax
SB 56 -This bill became an omnibus tax bill incorporating several different provisions:
- Annual IRC Conformity Bill. The bill incorporates earlier HB 95 to update Georgia’s rolling conformity to the IRC through the 2022 tax year, except where otherwise stated.
- Georgia decoupling from IRC § 174 beginning TY 2022. IRC §174 relates to certain research and experimental expenditures (R&E) paid or incurred by the taxpayer during the tax year. Under the provisions of the 2017 Tax Cuts & Jobs Act (TCJA), beginning with the 2022 tax year, taxpayers no longer have an option to fully deduct their R&E expenditures, they must capitalize and amortize domestic R&E expenditures over 5 years. Under SB 56, Georgia would decouple from the mandatory amortization and follow pre-TCJA IRC § 174, allowing deductibility of R&E expenditures in the year the expenditures are made for 2022 and subsequent tax years.
- Personal income tax changes. The bill amends the personal income tax statute in several ways. First, it relaxes the lookback conditions required to trigger annual personal income tax rate reductions from 5-years to 3-years that would result in an annual personal income tax rate reduction beginning in 2025. It also replaces the personal exemption amounts in effect as of tax year 2024 with new standard deductions. Additionally, the bill allows taxpayers itemizing deductions on their federal returns to either do so on their Georgia returns or elect to take a new standard deduction. Finally, the bill creates a new $300 nonrefundable income tax credit for filers who itemize deductions on their Georgia returns to offset the loss of the personal exemption.
- Adds pandemics to force majeure exception for qualifying for jobs tax credit. SB 56 revises the definition “force majeure” to include a pandemic for projects certified on or after July 1, 2023. Taxpayers’ projects which fail to meet requirements on the credit because of force majeure may petition the Commissioner to adjust the qualification calculation for the credits.
HB 412 - Pass-Through Entity election for partnerships. This bill amends the income taxation of partnerships by removing the limitation on which partnerships may elect to be treated as a Pass-Through Entity (“PTE”). Since Georgia originally enacted the PTE election, only partnerships in which all members could qualify to own an “S” corporation were allowed to make the PTE election. This bill removes that limitation and opens up the election to more pass-through entities effective for the 2023 tax year.
HB 482 - Excludes income tax-exempt entities from quality job tax credits. After the Tax Tribunal and Fulton County Superior Court determined that a non-profit hospital could qualify for the quality jobs tax credits, the Department of Revenue sought to change the statute to expressly exclude entities that do not pay Georgia corporate income tax for qualifying for the jobs tax credits. As described in this legal alert, the initial legislation sought to retroactively “clarify” that these entities could not qualify for the credit. However, the as passed bill makes clear that the change is prospective only, and non-profits may be eligible for tax credits for prior years.
HB 162 - Personal income tax rebate. On March 14, 2023, Governor Kemp signed into law a one-time tax rebate of $250 for individual filers, $375 for heads of household, and $500 for married filed, so long as such individual income taxpayers who filed returns for both 2021 and 2022 taxable years.
Sales tax
SB 56 - Imposes sales tax on digital goods. This bill would impose sales tax on the retail sale of specified digital products, other digital goods or digital codes sold to an end user for the right of permanent use and the transaction is not conditioned upon continued payment by the end user. Taxable items would digital books, magazines, music, and video games that meet the right of permanent use and conditional continued payment criteria. The bill would not apply to streaming or subscriptions services. Taxation of these items would become effective on January 1, 2024. Electronically delivered software other than specified digital products remains exempt from sales tax.
HB 408 – Exemptions for projects of regional significance. This bill extends a sales tax exemption for tangible personal property used in construction projects that the commissioner of economic development determines have a significant regional impact through December 31, 2026.
SB 146 - Motor fuel tax on electric vehicle charging. This bill imposes motor fuel tax on electric vehicle charging stations, effective January 1, 2025. The bill would not impose tax on private electric vehicle charging.
Bills that did not pass
Georgia’s legislative session is two years. Therefore, bills introduced during this 2023 session may still pass during the 2024 session. The following are some notable bills that remain alive for next year:
HR 598 – This bill is a constitutional amendment that would transfer the Georgia Tax Tribunal from an executive branch administrative tribunal to the judiciary branch as a specialized court, similar to the relatively new statewide business court. If passed during the 2024 Georgia legislative session, the constitutional amendment would be a statewide ballot measure appearing on ballots in November 2024. The constitutional amendment would be coupled with enabling statutes to go into law if the constitutional amendment passes.
HB 191 – This bill increase the tax on tobacco and vaping products by 20 cents.
HB 581 – This bill would have revised selection criteria and required contents for annual economic analyses regarding tax credits and exemptions. In 2021, the legislature enacted SB 6, which created a process for performing economic analyses on existing tax credits and exemptions. That review process will continue unchanged in between sessions.
Upcoming review of state incentives
Earlier this month, the Governor, Lt. Gov., and House Speaker announced plans for a detailed review of all state tax incentives. The review is intended to occur between the 2023 and 2024 legislative sessions. State officials have indicated their desire to analyze the economic impact of all income tax credits, sales and use tax exemptions, and related economic incentives and the desire to potentially reduce or eliminate some with the goal to further reduce the state income tax rate. Earlier this year, the Georgia Department of Audits & Accounts issued several reports analyzing the economic impact and return on investment of many current popular state tax credits and exemptions prepared as a result of the Tax Credit Return on Investment Act of 2021.
[View source.]
