A look back at the 2022 Georgian legislative session | Alston and bird
Georgia’s 2022 legislative session included a number of sizeable tax bills. Our national and local tax group highlights key takeaways.
- What Happened: Rate Cuts and Elective Consolidation
- What didn’t pass: Revisions to film tax credits and sales tax on electronically delivered software
- How these changes will impact individual and business taxpayers
With Governor Brian Kemp signing off on a number of new tax bills passed by the Georgia General Assembly this spring, the 2022 Georgia legislative session is finally over. This year’s session was important for Georgian individual and corporate taxpayers both because of what was passed (e.g. rate reductions and optional consolidation) and what was not. cases (for example, proposed major revisions to film tax credits and sales tax on electronically delivered software).
What happened: new legislation from this year’s session
Lower personal income tax rate
Last session’s main tax bill for individual taxpayers was HB 1437, which authorizes a reduction in the personal income tax rate from the current annual tax rate of 5.75% to a rate of 4.99. % by 2029. Rate reductions would be phased in over several years, assuming certain revenue and tax collection thresholds are met.
Note that this tax rate reduction does not apply to corporations, which will continue to be taxed at 5.75%. Similarly, FTEs that elect to be taxed at the entity level will continue to be taxed at the higher rate of 5.75%. Owners of such PTEs should consider this disparity between personal and PTE tax rates as part of their decision tree in deciding whether to make the PTE election for the Georgian source taxable income of PTE.
The General Assembly also passed HB 1058, which allows affiliated groups to elect to file a consolidated return for Georgia corporate income tax purposes. Current law only allows taxpayers to file on a consolidated basis if the Department of Revenue gives them permission.
The consolidated elections will be binding for five years and will apply to taxation years beginning on or after January 1, 2023. Although each entity included in the consolidated group still calculates its Georgia taxable income on a separate basis, the consolidated election would allow group members to offset net operating losses against the taxable income of other group members (subject to rules governing losses accrued in the years prior to consolidation, referred to as the “separate yield limitation year” or “SRLY” rules). Taxpayer groups that are already filing on a consolidated basis with ministry approval have the option of continuing to file on that basis or ending their approved consolidated basis and electing (or not) to file on a consolidated basis in under the new law.
We anticipate that the Ministry of Revenue will update its Consolidated Election Regulations to reflect the new law.
Data Center Sales Tax Exemption
House Bill 1291 extended the expiration of sales tax exemptions for purchases of computer equipment qualified for a high-tech company (until December 31, 2028) and for high-tech data centers meeting certain investment thresholds (until December 31, 2031).
While extending the life of both exemptions, HB 1291 also amended them. Beginning in 2024, the $15 million purchase threshold can only include taxable purchases or leases of computer hardware, and purchases of pre-written computer software and computers or devices issued to employees are specifically excluded. This change reverses the decision of the Georgia Court of Appeals in Choicepoint Services Inc. c. Graham1, in which the court ruled that the $15 million exemption threshold could be met with non-taxable purchases of pre-written software delivered electronically. Also starting in 2024, a taxpayer claiming the exemption must pay tax on 10% of the first $15 million in qualifying purchases.
HB 1291 also changed the job creation and investment requirements to qualify for the data center sales tax exemption:
- In counties with populations over 50,000, the job creation need for high-tech data centers has grown from 20 to 25 new quality jobs.
- In counties with populations between 30,001 and 50,000, the job creation requirement was reduced from 20 to 10 new quality jobs and the minimum investment was increased from $150 million to $75 million.
- In counties with a population of 30,000 or less, the job creation requirement has been reduced from 20 to 5 new quality jobs and the minimum investment has been reduced from $100 million to $25 million.
These changes reflect an effort to increase the attractiveness of locating data centers outside of the Atlanta metro area in smaller, more rural counties.
Appeals to Superior Courts
House Bill 916 changed the procedure for appealing decisions of an administrative tribunal (such as the Georgia Tax Court) to a superior or state court by providing a uniform appeals procedure called a “petition in Review”. One of the goals of this bill is to increase access to justice through better resolution of appeals on the merits, rather than on complex procedural grounds.
For example, the bill revises section 48-5-311 of the Code, which relates to appeals from decisions of county equalization boards, to reflect the move from a “notice of appeal” to the uniform procedure. of “request for review”. The bill takes effect for cases filed in superior courts on or after July 1, 2023. Three additional changes are worth noting:
- Superior courts are required to hold hearings for property tax appeals without a jury within 30 days of filing (unless the court continues them for a period not exceeding 90 additional days).
- The County Council of Tax Assessors may, with the taxpayer’s consent, conduct settlement conferences by audio or video teleconference, or other means of remote communication, reflecting practical changes made during the pandemic.
- In a change favorable to taxpayers, the courts no longer have the discretion to determine whether the value asserted by the tax assessment board is “unreasonable” if the tax assessment board fails to discharge its burden of proof (i.e. proving his opinions on the value and validity of his proposed assessment by a preponderance of evidence). Instead, if the tax assessment board fails to meet this paramountcy standard, the court “must” find that the value asserted by the tax assessment board is “incorrect” and allow the determination of the final value of the property.
What didn’t happen – but could come back in years to come in a legislature near you
Taxation of digital goods and services
House Bill 594, which was amended and deferred from the 2021 legislative session, would have imposed a sales and use tax on certain digital goods and services. This bill would have amended the definition of tangible personal property to include “digital goods or services,” which were defined as “(A) specified digital products or pre-written software delivered electronically to an end user…; (B) A numeric code; (C) Specified Digital Products or pre-written computer software to which access or use rights may be authorized and possession of which is retained by Seller or a third party…; or (D) Electronically provided rights, licenses, or benefits to improve, maintain, update, renew, upgrade, or extend the benefits of specified digital products or pre-written software. »
Confusingly, some versions of the proposed HB 594 would not have amended OCGA § 48-8-3(91), thus leaving the sales/use tax exemption for the sale of pre- writings that were delivered to a buyer electronically or by “load and go.”
Although the bill did not pass this session, taxpayers should expect the General Assembly to consider another proposal to extend sales/use tax to goods and services. digital in a future session. Taxpayers should be prepared to argue for sensible and well-defined taxation of this extension of sales and use tax; in particular, corporate taxpayers should be prepared to seek memorialization of the concept embedded in the 2021 wording which was intended to tax only sales or uses by an individual end user, excluding software purchased for use in a commercial enterprise .
Film tax credits
Finally, the General Assembly considered but did not include in its tax reduction bill (HB 1437, discussed above) language that proposed to either (1) cap the available number of tax credits film tax on an annual basis; or (2) eliminate the ability of production companies to transfer the credits they earn to a purchaser who has enough Georgia income tax to use the credits.
While the credit program’s role in creating and sustaining a massive film industry in Georgia is indisputable, a number of lawmakers continue to bristle at the cost of an industry-specific subsidy. Worries about the credits have been alleviated – but obviously not eliminated – by a new audit program that began in 2021 in response to claims that the film tax credit program lacked sufficient safeguards.
For now, the film tax credit program seems safe, but the Georgian production industry and taxpayers who have benefited from purchasing and using the credits to reduce their tax liabilities in Georgia should remain vigilant to defend the value of the program in the years to come. In addition to reaping the economic benefits of the industry’s presence, Atlantans – including these authors – love to see their neighborhoods, favorite restaurants, and local parks frequently featured on screen (though we’re not often only a replacement for Chicago or Anytown, USA).
1Choicepoint Services Inc. c. Graham, 699 SE2d. 452 (2010).
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