May 4, 2023
Typically, the end of a state legislative session rarely captures the attention of Atlanta individuals, families, and businesses. However, the most recent session included several important changes and updates, including another personal income tax rebate. Other changes include the introduction of a new sales tax on digital goods, personal income tax updates, modified elections for pass through entities, and changes to the R&D tax credit. Since the updates were sent to the Governor on March 29, 2023, he has up to 40 days to sign or veto the legislation, otherwise it will become law on May 8th. Several parcels of legislation have already been signed into law including House Bill 162 and Senate Bill 56. It is expected the remaining provisions will automatically become law early next week. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Atlanta businesses claiming the federal research and development (R&D) tax credit, under Internal Revenue Code (IRC) § 174, are now required to capitalize and amortize eligible expenses over a five-year period. This update, which is effective for tax years starting in 2022 was ushered in with the Tax Cuts and Jobs Act of 2017 (TCJA). While there are efforts underway to nullify this update, including through the American Innovation and Jobs Act, no formal changes have been passed.
On the state level, the Georgia Assembly proposed decoupling from the IRC to allow Georgians to follow pre-TCJA rules. This means for purposes of the Georgia R&D tax credit, eligible expenses can be deducted in the year claimed. The modification will ensure that companies investing in innovation will be able to immediately claim the deduction. The timing is an essential consideration because many organizations rely on these tax savings to fund future R&D efforts.
For the second year in a row, eligible taxpayers will be receiving a special tax refund. Only those that file a state tax return in both 2021 and 2022 are eligible. The refund amount is determined by taking the lessor of the 2021 individual income tax liability as reported on Line 16 of the 2021 Georgia Form 500, Line 4 of the 2021 Georgia Form 500EZ, or the pre-determined amount based on taxpayer filing status. In the case of a single or married filing separately, the amount is $250, head of household $375, and for married filing jointly is $500. It is important to note, the amount of the refund cannot exceed the taxpayer’s reported individual income tax liability. Therefore, those that did not have any state income tax liability will not receive a refund.
There are also several provisions impacting individual income taxes. The lookback period required to trigger an annual personal income tax rate reduction was reduced from five to three years. This change means many would be eligible for a rate reduction starting in 2025. Calls for a replacement of the personal exemption amounts in tax year 2024 with new standard deductions. Finally, a new $300 nonrefundable credit for those itemizing deductions will be available to offset the loss of the personal exemption.
The legislation changes the rules for partnerships making a pass-through entity (PTE) election. Since the election was first available, only partnerships in which all members qualified to own an “S” corporation were permitted to make the election. However, this change removes that restriction making it easier to claim. n.
Another provision calls for the introduction of a new sales tax on the retail sales of digital products and goods. Only downloads that are sold with the right of permanent use and are not conditioned upon continued user payments qualify. Examples include music, video games, eBooks, and digital magazines. It is important to note that streaming or subscription services are exempt. The tax will go in effect on January 1, 2024.
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These changes are certainly welcome news to many Atlanta area businesses, individuals, and families. The opportunity to receive another personal income tax rebate makes it easier to accommodate the new sales tax on digital downloads. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.