June 20, 2019

Georgia R&D Tax Credit

The State of Georgia is well-known for rewarding its citizens with tax credits and abatements that other states do not. The opportunity zone program has been around for years, long before the Federal government released their version of the tax incentive; the Heart Tax Credit benefits taxpayers and donor recipients alike, and the voluntary disclosure program shows that they are willing to sacrifice revenue to help struggling businesses come back into compliance. Even among these heavy-hitting programs, the research and development (R&D) tax credit is one of the state’s most generous offerings. The Georgia R&D tax credit rewards taxpayers when they research and develop new products and services. Atlanta business owners should strongly consider this credit in 2019 and 2020; it may be the catalyst they need to catapult their businesses to new levels of success.

Georgia Credit Basics

At first glance, the Georgia research tax credit is simple to qualify for: taxpayers who have claimed and been rewarded with a Federal research tax credit will be granted a Georgia R&D credit. The benefit is 10% of qualified research expenses, to be taken as a nonrefundable state income tax credit and potentially as an offset to payroll tax withholding liabilities. Although the Georgia tax credit is simple to apply for, qualifying for the Federal tax credit can be tricky. That’s where we can help.

How to Qualify for the Credit

To qualify for the Federal tax credit, taxpayers must do the following:

• Prove that their research activities are qualifying. Federal R&D activities must meet all parts of a four-part test. (1) The activity must be technical in nature, meaning it must utilize hard sciences like engineering, chemistry, biology, physics, or computer science. (2) The research’s purpose should be to create a new or improved product or process, increasing performance, function, reliability, or quality. (3) The process should rely on experimentation to achieve the desired result. (4) The activity should be performed where there is technical uncertainty. There should be discovery and learning during the process.
• Prove that their research expenses are qualifying. Qualified research expenses include most outlays that taxpayers expend performing an R&D activity, like wages, costs of rental equipment, supplies, and contractor fees. For the expenses to qualify for the Georgia credit, they must have been spent within state limits, and they must be conducted in specific industries: manufacturing, warehousing and distribution, processing, telecommunications, broadcasting, research and development, and tourism. Child-care are retail businesses are explicitly excluded.
• Prove that they have ramped up their R&D spending. The tax credit is meant to encourage additional R&D spending, so the credit is only awarded when R&D expenses increase compared to previous years. Georgia’s “base period” is an average of the three-year period immediately preceding the year in which the credit is claimed. Taxpayers will only receive an R&D credit if they can prove they have been spending more on R&D than in years past.

Other Credit Details

It’s important to note that both corporations and pass-through entities, can claim the credit. Pass-through entity owners will claim their portion of the credit on their personal returns. Taxpayers can claim the credit by filing Form IT-RD and attaching Federal Form 6765 to their Georgia income tax return.

In any one year, the Georgia tax credit is limited to 50% of the taxpayer’s Georgia income tax liability. Any unused amounts can be carried forward up to 10 years or can be used to offset payroll withholding tax liabilities. To claim excess R&D credits, taxpayers must file Form IT-WH within 30 days of their Georgia income tax return due date (including extensions), or within 30 days that they timely file their return – whichever occurs first. This form must be filed electronically.

Contact Us

The research tax credit is just one of many that our practitioners are familiar with. For a more thorough listing of the credits, we can help our taxpayers claim, click here. If you have already worked with your accountant to claim the R&D credit for Federal purposes, it will be worth your effort to see if you qualify for Georgia’s version. You may be eligible for the credit even if only a portion of your R&D expenses are performed within the state. And since it can offset future income tax or payroll liabilities, you don’t have to use it all in the first year. If you would like to discuss the Georgia R&D tax credit or any other tax credits with one of our CPAs, get in contact with us. We look forward to hearing from you.