Georgia Legislature enacts significant tax legislation but falls short on major sales tax proposals

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

Georgia’s 2019 legislative session concluded on April 2, 2019. Several important tax changes passed or were considered this year, and are discussed below. 

Passed Bills 
Unless otherwise indicated, these bills have passed the Georgia General Assembly but await the Governor’s signature or veto before enactment. Absent any action by the Governor, the bills become law within 40 days from the end of the legislative session, or May 12, 2019 (though the bill effective dates may vary).

Income Tax
HB 224 – Income Tax Credit Changes.
This bill would expand and clarify the provisions for four existing income tax credits effective for the 2020 tax year: Rehabilitation of Historic Structures (O.C.G.A. § 48-7-29.8); Quality Jobs Tax Credits (O.C.G.A. § 48-7-40.17); and the Qualified Investment Tax Credit (O.C.G.A. §§ 48-7-40.2, 48-7-40.3). Additionally, the bill would allow certain Qualified Investment Tax Credit carryover amounts to be used against the taxpayer’s payroll withholding obligations with individual and aggregate limitations. 

HB 419 - IRC Conformity Bill
This is the annual bill that updates Georgia’s tax code to conform to the current—as of January 1, 2019—Internal Revenue Code (IRC). The bill would also make the partnership audit election under O.C.G.A. § 48-7-53(3) irrevocable. There were no other significant changes in this year’s bill after the major conformity changes following the 2017 federal Tax Cuts and Jobs Act (TCJA). See prior coverage Legal Alert: Will Georgia conform to federal tax reform? Annual legislation introduced and Legal Alert: Georgia passes legislation to provide deduction of GILTI from the state tax base.

Sales and Use Tax

HB 182 – Wayfair Threshold Reduction.
During the 2018 legislative session, and before the US Supreme Court’s ruling in Wayfair, the General Assembly enacted HB 61, which created a bright-line nexus rule for remote sellers who have at least $250,000 of Georgia retail sales, or 200 separate sales of tangible personal property, delivered physically or electronically in Georgia within the current or previous calendar year. Sellers meeting this threshold were required to collect sales tax or submit to certain reporting requirements beginning January 1, 2019. Subsequent to Wayfair’s approval of South Dakota’s $100,000 threshold, HB 182 would lower the remote seller nexus threshold to $100,000 of Georgia retail sales and remove the reporting option beginning January 1, 2020.

HB 352 – Competitive Projects of Regional Significance
HB 352 would extend the exemption in O.C.G.A. 48-8-3(93)(A) for sales of tangible personal property “used for and in the construction of a competitive project of regional significance” through June 30, 2021. The current exemption expires on June 30, 2019. 

Eversheds Sutherland Observation: This exemption, originally effective in 2012, grants broad discretion to the Commissioner of Economic Development on when to grant this exemption. The statute contains no definition of a “competitive project of regional significance,” but instructs the Commissioner to promulgate regulations outlining the guidelines to be applied. The Commissioner has not promulgated any such regulations.

SB 120 – Georgia Tax Credit Business Place Act.
This bill would permit the chairs of the legislative committee charged with reviewing fiscal bills to each request up to three “economic analyses” per year from the state auditor. An economic analysis would include: (1) an estimate of the net change in revenue; (2) state expenditures; (3) economic activities; and (4) public benefit of a proposed or existing law. However, each analysis would be limited to a single provision—one tax credit, exemption, etc. 

Eversheds Sutherland Observation: This bill arises out of the work of the Special Tax Exemption Study Committee in 2017. The goal of the economic analysis is to review whether current tax credits and exemptions are providing the expected benefit, for consideration when sunsetting provisions are considered for renewal. A prior version of a similar bill would have mandated economic analyses resulting from the legislation containing exemptions and credits before the General Assembly could have voted on it. However, the final legislation is permissive.

Property Tax 
HB 405 – Freeport Exemption Expansion.
This bill would expand the freeport exemption for inventory in the process of manufacture or production to also apply to inventory held by the taxpayer’s affiliate. The bill would also clarify that the freeport exemption applies to inventory intended for the repair or modification of goods manufactured, processed, or produced by the taxpayer or its affiliates. 

Failed to Pass

Marketplace Bills Fail to Pass
Both the Georgia House and Senate versions of the Marketplace bills failed to pass SB 128 and HB 276.These bills would have required online marketplaces to collect sales tax on behalf of the sellers that use the marketplaces. 

Eversheds Sutherland Observation: Competing versions of a marketplace bill passed both the House and the Senate. However, it appears that the House and Senate were unable to agree on the treatment of rideshare and other for-hire transportation services and the extent to which marketplace facilitators and marketplace sellers would be subject to audit and relieved of audit liability. It is expected that a working group will attempt to hammer out the details of this legislation over the summer and present compromise legislation by the time the legislature reconvenes.

HB 447 - Jet Fuel Tax Exemption
This bill, as passed by the House, would have made permanent the temporary suspension of state sales tax on jet fuel, which had been ordered by former Governor Deal and later approved in special session through June 30, 2019. The Senate added this exemption to another tax-related bill, SB 200, which related to transportation and state and local taxes and fees on for-hire transportation. However, the House and Senate ultimately could not agree on a final version of the bill, and none of these provisions passed.

Carryovers for Next Year
2019 is the first year of Georgia’s two-year legislative session. Bills introduced this year that did not receive hearings or votes this year will carry over into 2020. Additionally, the provisions and bills that failed to pass this year, including those described above, could once again be considered and voted on.

HB 538 – Elimination of Deference in Tax Cases.
This bill would require that courts considering appeals of actions by the Georgia Department of Revenue give no deference to the Department’s interpretation of ambiguous statutory or regulatory provisions.

Eversheds Sutherland Observation: This proposed legislation is part of a national trend of eliminating Chevron, Auer, and related judicially created deference doctrines, which require or permit courts to defer to administrative interpretations of statutes or regulations when such interpretations are merely reasonable. In recent years, Arizona, Florida, Mississippi, and Wisconsin have abandoned agency deference via legislation, litigation, or ballot initiative.

HB 350 – Expansion of Jobs Tax Credit Carryforward.
For credits claimed after July 1, 2019, this bill proposes to expand the ten-year carryforward of the jobs credit to be measured from the year the jobs tax credit was claimed rather than from the year the job was established.

HB 428 – Communications Services Tax (CST).
Versions of this bill have been proposed in Georgia for the last several years. The original version of this bill proposed to add a new tax on “communications services”—telecommunications, video services, and certain digital goods or services—while excluding streaming services. The original bill would have used additional revenue to expand rural broadband. The CST would be in lieu of other sales taxes and franchise fees currently applicable to these services. Later versions of the bill would have also subjected certain digital goods, including prewritten downloaded software, to sales tax rather than the CST. The General Assembly is most likely to consider a different version of this bill in the second year of this legislative session.

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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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