Georgia General Assembly adjourns with new tax legislation

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLPIn the last days of the legislative session, the Georgia General Assembly passed key legislation, including conformity to the federal tax law, a new rideshare fee, changes to interest payments on direct pay permit holder’s refund claims, and amendments to the film tax credit. However, bills limiting tax credits and exemptions, eliminating or reducing administrative deference at the Tax Tribunal, legalizing online sports betting, and facilitating contingency fees failed to pass.  

Friday, June 26, 2020 was “Sine Die” or the 40th and final legislative day of the 2019–2020 legislative session at the Georgia General Assembly. The legislative session was suspended since March 13, 2020 but resumed earlier this month for the remaining 11 days of the legislative session earlier this month. Although bills that did not pass one chamber of the legislature on Crossover Day technically cannot pass, the legislature may “strip” a bill to add new provisions or append language from one bill to another. However, when one chamber (the House/Senate) makes changes to the bill passed by the other chamber, the other chamber must agree to that change before the bill can pass. Therefore, a bill’s language may get multiple votes before it is approved in final legislation.  

Bills passed by the General Assembly. Bills passed by both chambers of the General Assembly are transmitted to the Governor, who can sign or veto the legislation for 40 days after the end of the legislative session. If the Governor fails to sign or veto a bill, it will become law upon the expiration of that date.

HB 276 – Marketplace legislation. Prior to the March suspension, Governor Kemp signed Georgia’s marketplace facilitator law into law and it became effective on April 1, 2020. This bill requires “marketplace facilitators” to collect and remit sales tax on behalf of their marketplace sellers. See additional coverage here.  

HB 105 – Rideshare Bill. This bill contains provisions related to the taxation of for-hire transportation (rideshares, taxis). The bill would impose a 50¢ fee on each for-hire ground transport trip and 25¢ upon any shared for-hire ground transport trip and would add an exemption for such transportation from state sales and use taxes. This bill was passed by both chambers on June 25, 2020.      

HB 846 - IRS conformity, direct pay permits, jobs tax credit, and PPE credit. As a fixed conformity state, the General Assembly annually passes a conformity bill. Before the suspension of session, HB 949, as passed by the House, would have updated federal conformity, eliminated marginal rates and reduced the rate for individuals, and eliminated the state deduction for individual Georgia income taxes paid. These items were ultimately removed from the final conformity legislation, which addressed more urgent COVID-19 related items and was combined with other tax measures within HB 846. HB 846 conforms Georgia’s revenue code to the federal code as of March 27, 2020. Despite incorporating certain CARES Act provisions such as conformity to the Payroll Protection Program, the bill decouples from two CARES Act provisions: (i) the ability to carry back NOLs arising in taxable years beginning after December 31, 2017, and before January 1, 2021, for up to five years, and the temporary removal of the 80% limitation on the use of NOL’s for losses arising after December 31, 2017; and (ii) IRC § 461(L) provisions relating to excess business losses for individuals and flow-through entities. Additionally, while the federal changes will apply for the 2019 and 2020 tax years, they will not apply to 2018.

HB 846 also creates a new tax credit for qualifying personal protective equipment (PPE) manufacturers under O.C.G.A. § 48-7-40.1A. The credit of $1,250 per employee engaged in manufacturing PPE is available to businesses qualified to claim a jobs tax credit. The PPE credit is available beginning January 1, 2020 and sunsets at the end of 2024. Excess PPE credit may be applied against state payroll withholding obligations.

HB 846 also modifies the jobs tax credit and the quality jobs tax credit, under O.C.G.A. §§ 48-7-40, 40.1, 40.17, to soften the impact of COVID-19 employment disruptions. In calculating the credits for 2020 and 2021, the provision allows businesses to use either actual 2020 and 2021 new job numbers or the new job numbers used during the 2019 tax period.

Finally, as included within the original version of this bill, after years of legislative proposals, HB 846 provides that statutory interest be paid on refunds of sales and use tax to direct pay permit holders, which statutorily invalidates the portion of the Department’s Direct Pay Permit Regulation (Ga. Comp. Regs. & R. 560-12-1-.16) that requires direct pay permit holders waive the payment of interest on refunds. Under the bill, refund interest would begin to accrue when the refund claim is filed rather than the date of the payment. HB 846 also includes a provision permitting local governments to elect for certain large sale and use tax refunds be paid back in installments with interest.

Both chambers approved HB 846 on June 26, 2020.

HB 1037 – Georgia film tax credit amendments. After the Georgia Department of Audits and Accounts published a report on Georgia’s firm tax credits, noting that the “Generous tax credit and insufficient controls incentivize misuse,” HB 1037 mandates audits of every production that receives the film tax credit. It also permits the Department of Revenue to certify outside auditors—certified public accountants meeting specified conditions—to perform the required audits. The bill also changes the carryforward period to three years from the date of the production’s film tax credit certification (instead of five years from the close of the tax year in which the investment occurred). This bill passed both chambers on June 25, 2020.

SB 410 – Property tax attorney’s fees. This bill amends the property tax appeal process by allowing taxpayers who prevail in superior court to receive attorney’s fees and litigation expenses when a county appeals the administrative tax holding. Currently, the law only allows the county (and not the taxpayer) to receive attorney and litigation expenses when appealing a property tax case. Both chambers agreed to the final version of this bill on June 26, 2020.  

Eversheds Sutherland Observation: Under the current property tax appeal structure, if a county loses at the administrative level, there is little reason for the county to not appeal to court. This legislation provides a disincentive by requiring the county pay litigation expenses, depending on the finally determined value of the real property. However, this bill only applies for real property appeals and not personal property appeals.

Notable bills that failed to pass

HB 538/SB 289 Taxpayer Fairness Act. These bills would have either eliminated or reduced judicial deference to interpretations of the Department of Revenue. HB 538, which passed the House by a vote of 158-8, eliminated deference to all regulatory and sub-regulatory interpretations of the Department of Revenue by providing that that all questions of law decided by the Georgia Tax Tribunal or superior courts, including interpretations of constitutional, statutory, and regulatory provisions shall be made without deference to any rule, determination, or interpretation made by the Department of Revenue. SB 289, which passed the House by a unanimous vote of 162-0, stripped a bill previously passed by the Senate to eliminate all sub-regulatory deference but retain “due deference” to properly promulgated regulations, unless the court determined that the taxpayer has a better interpretation of ambiguous law. Based on the terms and effective dates of the proposed legislation, neither measure would have impacted any pending litigation matters. Both measures failed to be approved by the Senate.

Eversheds Sutherland Observation: These provisions were intended to level the playing field in Georgia tax litigation matters and are similar to measures recently taken in Arizona, Florida, Mississippi and Wisconsin by legislation, ballot initiative, or judicial ruling. Furthermore, the United States Treasury and the Internal Revenue Service have stated that they will no longer argue for deference under Auer or Chevron related positions and interpretations taken on in sub-regulatory guidance.

HB 903The Georgia Lottery Mobile Sports Wagering Integrity Act. HB 903, originally a bill regarding traffic citations, was stripped to add new language legalizing online and mobile sports wagering in the state. The bill imposed a 20% privilege tax on the gross income of all licensees accepting wagers, and earmarked all of this revenue for state education (i.e., the HOPE Scholarship). Rather than legalizing wagering through a constitutional amendment (and constitutional referendum), HB 903 amended the term “lottery” to include the use of online sports wagering platforms. The Georgia Lottery Corporation would have been responsible for the administration and regulation of sports wagering in the state. This proposal was estimated to generate approximately $60 million annually and was supported by all the local professional teams.

Earlier in the year, the legislature also considered HR 378 and SB 403 as ways to legalize sports wagering in the state. HR 378 proposed a state constitutional amendment authorizing betting, gambling, and bingo in the state, without specific reference to online gaming. HB 403 proposed legalized mobile sports wagering that would have been regulated by a newly created Georgia Mobile Sports Wagering Integrity Commission, established under the authority of the Georgia Lottery Corporation.

HB 1035Tax Exemption and Credit Reform Act of 2020. In response to Georgia’s projected budget shortfall, HB 1035 proposed to implement a 10% reduction in the “total value derived from any preferential tax law” for the period beginning July 1, 2020 and ending June 30, 2021. It defined “preferential tax law” broadly as ‘”any statutory provision which exempts, in whole or in part, any specific class or classes of persons, income, goods, services, or property from the impact of established taxation by this state by any direct or indirect method including any exemption, exclusion, or deduction from the base of a tax, tax allowance, preferential tax rate, deferral of a tax, rebate of taxes paid, or tax abatement.” Since reconvening session, this bill garnered lots of public attention. Previous versions of the bill sought to repeal, or limit, dozens of specific tax credits and exemptions. However, the Senate ultimately tabled the bill before the final day of the legislative session.

This bill also incorporated former SB 302 – the Tax Credit Return on Investment Act of 2020, which would have allowed the chairpersons of the House Committee on Ways and Means and the Senate Finance Committee to request independent economic analyses from the Office of Planning & Budget, which measured the state’s return on investment from various tax incentives and benefits.

SB 480 - Contingency fees. 2018 legislation enabled the Department of Revenue to engage third parties to perform sales and use tax data analytics services and be compensated on a contingent basis (see prior coverage on HB 811). However, the legislation lacked specificity as to implementing the contingent fee arrangement. SB 480 would have provided that such contingent fee would be deducted from such collections prior to the deposit of such funds into the general fund. This bill received criticism around transparency and constitutionality. This bill failed to pass the House and will not become law.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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