TAX NEWS - August 2009

S-Corporations Tax FAQ - State of Georgia tax

Q. Does Georgia have its own K-1?

A. No.


Q. Who gets the benefit of tax credits earned by s-corporations?

A. Usually the benefits are passed through to the shareholders.


Q. Where do I deduct separately stated expenses (Section 179, charitable contributions, investment expenses etc.) on the s-corporation Form 600S?

A. Since these items may be subject to further limitations, they are not deducted in the calculation of Georgia net income of the s-corporation. The portion of these expenses that are attributable to Georgia, that have not been included in the s-corporation's Georgia net income and that have been allowed on the taxpayer's Federal tax return, can also be subtracted on the shareholder's Georgia return.


Q. If we file as an s-corporation with the IRS, how do we file with Georgia?

A. In order for the s-corporation election to be recognized, nonresident shareholders must execute an agreement (Form 600 S-CA) where the shareholders agree to pay Georgia income tax on their proportionate part of the corporation's Georgia taxable income or the s-corporation election will be terminated. If the agreements are executed, the corporation should file Form 600S.


Q. If a composite return is being filed on behalf of nonresident shareholders of an s-corporation, is it necessary to have the consent agreements attached to the corporate return (Form 600S)?

A. Yes. A consent agreement for each shareholder shall be filed by the corporation with its corporate return in the year in which the Subchapter "S" corporation is first required to file a Georgia income tax return.

For a Subchapter "S" corporation in existence prior to January 1, 2008, the consent agreement shall be filed for each shareholder in the first Georgia return filed for a year beginning on or after January 1, 2008. A consent agreement shall also be filed in any subsequent year for any additional nonresident who first becomes a shareholder of the Subchapter"S" corporation in that year. O.C.G.A. § 48-7-27(d)(2).


Q. For income tax purposes, does Georgia follow the Federal treatment for a Qualified Subchapter S Subsidiary (QSSS)?

A. Yes. However, the QSSS and the parent would file separate net worth tax returns. If the parent is not registered with the Secretary of State and does not do business or own property in Georgia or receive income from Georgia sources (other than thru the QSSS) they would not be required to file a net worth tax return. Alternately, a QSSS that is not registered with the Secretary of State and does not do business or own property in Georgia or receive income from Georgia sources would not be required to file a net worth return, even if the parent is required to do so.


Q. Does your state accept an Employee Stock Option Plan (ESOP) as a shareholder for an s-corporation?

A. Yes.


Q. How is an ESOP shareholder in an s-corporation taxed?

A. An ESOP shareholder is not taxed unless the income is considered Unrelated Business Taxable Income (UBTI).


Q. Can you carry back or carry forward a loss from a year when the corporation was not recognized as an s-corporation in Georgia to a year when it is recognized as an s-corporation in Georgia?

A. No.


Q. Does having an employee in Georgia create NEXUS (requiring the corporation, or the shareholders in the case of an s-corporation, to pay Georgia income taxes) for a company based in another state which sells tangible personal property?

A. Yes. In general having an employee in Georgia does create NEXUS. However, Public Law 86-272 provides an exemption from taxation in the following circumstances. If the employee merely solicits orders for sales of tangible personal property that are sent outside Georgia for approval and are filled and shipped from outside Georgia (from a state other than Georgia where the employee's corporation conducts its business) then the exemption from taxation applies. It must be noted that if an employee goes beyond mere solicitation then the tax exemption does not apply. Additionally, the Public Law 86-272 exemption does not apply to the net worth tax, so a Form 600 or 600S must be filed with Georgia and the net worth tax must be paid. Even when the exemption applies, we recommend that the corporation complete all schedules on the Georgia tax return relating to income tax and attach a copy of their Federal Form 1120 or 1120S. However, on line 8, Schedule 1, of Form 600 or on the face of page 1 of the 600S they should indicate their belief that they fall under the protection of Public Law 86-272 and show -0- tax due.