TAX NEWS - August 2009

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General Business Tax Credits FAQ - State of Georgia tax

Q. Can a BEST credit be applied towards the net worth tax?

A. No.

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

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

Q. Can BEST credits be transferred?

A. Yes, BEST credits may be transferred between affiliated entities per Georgia Code Section 48-7-42. The election to transfer the credit must be made by the due date of the return including extensions. Credits may not be transferred on amended returns filed after the due date unless the transfer follows the election made on the original return. Carryforward credits and previously transferred credits may not be transferred.

Q. When did the transfer of credits change to allow income tax credits to be transferred in whole or in part to one or more affiliated entities?

A. The law change is applicable to tax years beginning on or after January 1, 2002.

Q. How are transferred credits reflected on corporate tax returns?

A. Beginning in 2002, Form 600 was amended to add Schedules 9 and 10. These two schedules should reflect the credits claimed and the credits transferred. There are spaces to show what entity the credit was transferred from/to and the percentage of credit being claimed or transferred. (Form 600S has these two schedules as Schedules 10 and 11.) A statement should also be attached to the tax return to make the election to transfer the credit and to specify the affiliate(s) to which the credit is being transferred.

Q. How does a company claim withholding tax credits?

A. Withholding tax credits require multiple steps to claim. First, Form IT-WH must be filed at least 30 days prior to the date the tax return will be filed on which the tax credits will be claimed. Then, the return is filed on which the credit is actually claimed. Once the tax return is received, DOR will review the return within 90 days and make a determination as to the amount of withholding credit that is available. Once a determination is made, a letter will be sent to the taxpayer notifying them of the amount of withholding credit allowed and when and how the credit may be claimed against future withholding tax payments. NOTE: The withholding credit does not refund any taxes previously paid.

Q. Is there a limitation on the amount of job tax credit that may be claimed against withholding?

A. Yes, the law limits the amount of credit which may be claimed against withholding to $3,500 per eligible new full-time job. If the company is claiming Port Traffic or Joint Development Authority amounts in addition to the Job Tax withholding credit, these amounts may only be applied against income tax liability. NOTE: In the case of a flow-through entity which makes an irrevocable election to claim the withholding credit, the amounts which may not be applied to withholding will be allowed to flow-through since they may not be applied against withholding tax.

Q. Can credits be used in aggregate to offset 100% of the tax?

A. Yes.  A taxpayer may apply the 50% limitation of one credit and the 50% limitation of another credit to offset up to 100% of the income tax liability.  Please note, however, that some credits have certain requirements when used in this manner and may not allow for 100% offset of liability (i.e. research and rapid growth credits).

Q. How are investment tax credits claimed?

A. The investment tax credit requires an application process, which must be approved before the credit can be claimed on the tax return. The regulation requires that the application be filed within 30 days of the completion of the project. For most taxpayers this will be within 30 days of the close of the tax year in which the project was completed. Applicants should allow a minimum of 60 days for the application to be processed. NOTE: Applications filed after the 30-day period must petition the Commissioner for approval to file the application late.

Q. What information should be provided with an investment tax credit application?

A. The application, which should be signed and dated by an officer of the corporation; a descriptive narrative of the project; a spreadsheet detailing the assets to be claimed with a description of the asset, an explanation of how the asset fits into the manufacturing process, the date placed into service and the purchase price of the asset; and, if the application is being filed by a consultant on behalf of a taxpayer, a properly executed Power of Attorney allowing any questions or correspondence to go through the consultant (without a POA, any questions or correspondence will go through the taxpayer at the address / phone number provided on the application).

Q. What assets qualify for the investment tax credit?

A. Only real and personal property qualifies for the investment tax credit.

Q. How is the Port Traffic Credit claimed?

A. The port traffic credit is claimed on the form for the tax credit which it is being claimed in conjunction with or in lieu of (i.e. job tax credit, investment tax credit, or optional investment tax credit). All requirements of the original credit must be met before claiming the port traffic credit. A statement must also be attached to the Georgia return claiming the port increase which reflects the base year traffic and the prior year traffic to substantiate the credit, otherwise the credit will not be allowed. For job tax credit, the port traffic increase must be established in the year of eligibility, with sustained increase shown for subsequent years.

Q. What vehicles qualify for the low-emission vehicle credit?

A. The low-emission vehicle credit is limited, by law, to vehicles which are (1) alternatively fueled and (2) registered with the Georgia Department of Motor Vehicle Safety. This means the vehicle (1) cannot operate on regular gasoline, which exempts hybrids, and (2) must be licensed. There are currently only a few natural gas vehicles which qualify for this credit. Any credit claimed must be certified by the Georgia Department of Natural Resources and a copy of this certification must be attached to the tax return on which the credit is claimed or the credit will be denied.

Q. How is the Headquarters Credit claimed?

A. An application is required for approval of the headquarters credit. This application requires detail about the establishment of the headquarters and the employees being claimed at that location. This application should be filed with the tax return on which the credit will be claimed. If withholding credit will be claimed, please see the immediately preceding question for the steps required to claim the withholding credit. If claiming the credit against withholding, sending a copy of the application to the address on the front of the application will assist in timely processing.

Q. How can I find out about new legislation regarding future business tax credits?

A. Please click here to see new legislation.

Q. How do I obtain more information on business credits?

A. For a detailed listing of available incentives and credits, please click here.

Q. What are the current criteria for qualifying with the Department of Revenue for the Georgia Low Income Housing Credit?

A. In order to qualify for the Georgia low income housing credit, the qualified Georgia project must be eligible for the federal housing credit, as defined in Section 42 of the IRC of 1986.

Q. What should be included with the tax return when claiming the Georgia Low Income Housing Credit?

A. For consistency with IRS Regulations, a partnership K-1(if claiming the credit as a flow through from a partnership), the associated Federal Form 8609 tax credit certificate and a schedule that includes each property for which a credit is claimed with a building-by-building allocation should be submitted with the tax return. See Form IT-HC.

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