CORPORATION, S-CORPORATION, PARTNERSHIP, LLC, AND NONRESIDENT WITHHOLDING FREQUENTLY ASKED QUESTIONS   

 

GENERAL QUESTIONS

 

Will Georgia follow IRS Notice number 2004-54 relating to paid preparer signatures?

What is the due date for corporate returns?

What is the due date for the partnership return?

Does Georgia accept the Federal extension?

If I only want to extend the Georgia income tax return, does Georgia have its own extension available?

Who must file a Georgia income tax return?

Where do I file my Georgia Returns?

How do I amend a Georgia return?

What are the reporting requirements as the result of an IRS audit?

If I close my business, should I notify the Department of Revenue?

If a company has to file a short period Federal income tax form, does it have to file a short period Georgia income tax return?

What U.S. Government interest is deductible from Federal income?

What municipal interest has to be added to Federal income?

What types of taxes have to be added to Federal income?

Has Georgia adopted the Uniform Division of Income for Tax Purposes Act (UDITPA).

Does Georgia follow the Multistate Tax Commission (MTC) regulations and policies.

What are my chances of being audited and what is the time frame for an audit?

What is required if my tax return is chosen for an audit?

Does Georgia consider the Texas Margin Tax to be an income tax?

General Business Credits

How do I obtain more information on business credits?

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

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

Can BEST credits be transferred?

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?

How are transferred credits reflected on corporate returns?

How does a company claim withholding tax credits?

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

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

How are investment tax credits claimed?

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

What assets qualify for the investment tax credit?

How is the Port Traffic Credit claimed?

What vehicles qualify for the low-emission vehicle credit?

How is the Headquarters Credit claimed?

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

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

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

Registration, Tax Clearance Letters, etc.

How does a company register to file Georgia Income Taxes?

What section of the Georgia Department of Revenue administers withholding on employees?

My corporation is incorporated in another state, must I register with the Georgia Secretary of State?

How do I obtain a Certificate of Good Standing for my corporation?

How do I obtain a Tax Clearance letter for corporate income and net worth taxes?

How do I obtain an income tax clearance letter for a partnership or an LLC that is treated as a partnership?

How do I obtain an income tax withholding clearance letter?

C-Corporations

What is the corporate tax rate?

Does Georgia have a minimum corporate income tax?

Does Georgia require estimated tax payments?

Does Georgia require these payments to be submitted electronically?

What number goes in line 1 of Schedule 1 of the Georgia 600?

How does Georgia treat a Net Operating Loss (NOL)?

Is it possible to have a Georgia NOL and not a Federal NOL?

Is it possible to have a Federal NOL and not a Georgia NOL?

A corporation that is a member of an affiliated group is sold and becomes a member of a new affiliated group. The IRS requires the corporation to file two short period returns so that each can be included on different consolidated returns. For Georgia purposes the corporation is filing separate returns (not as part of a consolidated return). How should they file with Georgia?

A corporation that is a member of an affiliated group is merged into another corporation. The new corporation is part of a different affiliated group. The IRS requires the corporation that was merged to file a short period return for the period before the merger but since it is filing as a member of a consolidated group the return is not due until the 15th day of the third month following the end of the consolidated group’s year end. For Georgia purposes the corporation is filing separate returns (not as part of a consolidated return). How should they file with Georgia?

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?

I file a Form 1120-H with the Federal government. What form should I file with Georgia?

Apportionment and Allocation of Income for Corporations, Partnerships and Limited Liability Companies

What code section and regulation provide guidance in this area?

How does Georgia source gross receipts for a company which manufactures, produces, or sells tangible personal property?

How does Georgia source gross receipts where the business income is derived principally from business other than the manufacturing, production, or sale of tangible personal property?

Does Georgia recognize Internal Revenue Code Section 338(h)(10) elections by c-corporations and/or s-corporations for state income tax purposes? How would the state treat the gain/loss arising from a section 338(h)(10) election?

Net Worth Tax for Corporations

What is the tax rate for net worth tax?

What dates should I use on the corporate return under net worth tax beginning and ending dates?

How is the net worth tax determined for a short-period income tax return?

How is the net worth tax determined for an initial or final return?

How can I file the initial net worth tax return two and one half months after incorporation when the IRS has not issued my FEI #?

How are a Qualified Subchapter S Subsidiary (QSSS) and its parent treated for Georgia Net worth tax purposes?

Is a disregarded single member LLC subject to the Georgia net worth tax?

Is an LLC who files as a partnership subject to Georgia Net Worth tax?

Is an LLC who files as a corporation subject to Net Worth tax in Georgia?

How is net worth tax determined on a corporation incorporated in Georgia that does business both inside and outside the state?

The property factor for income tax apportionment and net worth tax apportionment are computed differently. What kinds of property are included in the net worth apportionment?

Does a corporation have to file a net worth return on Form 600 or 600S even if the corporate income tax portion of the return does not have to be filed?

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

What is meant by "foreign" corporation?

Are homeowners associations liable for the net worth tax?

For a corporation which has a partnership interest, does the pro rata share of the partnership's receipts and assets also get added to the numerator (if applicable) and the denominator for calculating the net worth tax of the corporation as they do for the calculation of income tax?

S-Corporations

Does Georgia have its own K-1?

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

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

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

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)?

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

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

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

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?

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?

Partnerships

Where do I deduct separately stated expenses (Section 179, charitable contributions, investment expenses etc.) on the partnership Form 700?

How should guaranteed payments be treated on the partnership return?

Does a partnership have to pay net worth tax?

Does Georgia have its own K-1?

Who gets the benefit of tax credits earned by partnerships?

Limited Liability Companies

How is an LLC classified in Georgia?

In 1999, Tennessee expanded the type of entities that are subject to the Franchise and Excise tax. In addition to s-corporations, it now includes limited liability companies, limited partnerships, etc. A Georgia resident, who is a shareholder in an s-corporation operating in a state that does not recognize the s-election, can make an adjustment for this income on schedule 1, line 9, of Form 500 if the tax is paid by the corporation. Does this adjustment also apply to a member of a limited liability company (treated as a partnership) or a partner of a limited partnership when the limited liability company or the limited partnership pays the Tennessee Franchise and Excise tax?

Does an LLC have to pay net worth tax?

Withholding and Composite Returns for Nonresident Shareholders, Partners, and Members of S-Corporations, Partnerships and Limited Liability Companies

What code section and regulation provide guidance in this area?

General Questions

  1. Will Georgia follow IRS Notice number 2004-54 relating to paid preparer signatures?
  1. Yes. Using the IRS requirements, Georgia will permit paid preparers to sign original returns, amended returns, or requests for filing extensions by rubber stamp, mechanical device (such as signature pen), or computer software program. Also refer to Regulation 560-3-2-.27  “Signature requirements for tax returns.”
  1. What is the due date for corporate returns?
  1. The corporate income tax return is due on or before the 15th day of the 3rd month following the close of the taxable year. The corporate net worth tax return must be filed on or before the fifteenth day of the third month following the beginning of the corporation's taxable period. Both the income tax and net worth tax are reported on the same form, Form 600 or 600S.
  1. What is the due date for the partnership return?
  1. The partnership return is due on or before the 15th day of the 4th month following the close of the taxable year.
  1. Does Georgia accept the Federal extension?
  1. Georgia accepts the Federal extension to extend the due date for filing the return. Attach a copy of the Federal extension to the Georgia return when it is filed.
  1. If I only want to extend the Georgia income tax return, does Georgia have its own extension available?
  1. Yes, the Georgia extension Form IT-303 is available.
  1. Who must file a Georgia income tax return?
  1. Every corporation, partnership, and LLC which does business or owns property in Georgia or receives income from Georgia sources. Additionally, every partnership or LLC being treated as a partnership, which has partners or members which are domiciled in Georgia, must file a Georgia income tax return.
  1. Where do I file my Georgia Returns?
  1. The c-corporation return (Form 600) is mailed to: Georgia Department of Revenue, Processing Center, P.O. Box 740397, Atlanta, GA 30374-0397. The s-corporation return (Form 600S) is mailed to: Georgia Department of Revenue, Processing Center, P.O. Box 740391, Atlanta, GA 30374-0391. The partnership return (Form 700) is mailed to: Georgia Department of Revenue, Processing Center, P.O. Box 740315, Atlanta, GA 30374-0315.
  1. How do I amend a Georgia return?
  1. To file an amended Georgia return, check the "amended return" box on the front of the return. A c-corporation should use Form 600, an s-corporation should use Form 600S, and a partnership should use Form 700. Attach an explanation of any changes made. Show the computations in detail. If the change involves an item of income, deduction, or credit that you were required to support with a form or schedule on your original return, attach the corrected form or schedule.
  1. What are the reporting requirements as the result of an IRS audit?
  1. When there is an IRS change, the taxpayer has 180 days to report the change to the Department of Revenue on an amended return. A complete copy of the Federal change must be included with the amended return. If the taxpayer fails to notify the Department of the change, the Department has five years from the date the report is received from the IRS to issue an assessment. A taxpayer who fails to notify the Commissioner within 180 days forfeits any Georgia refund as a result of the audit if the normal statute of limitations has passed. However, for tax years beginning on or after January 1, 1987, 90% of any overpayment can be applied to a balance due for another year that is a result of the same IRS audit.
  1. If I close my business, should I notify the Department of Revenue?
  1. You are required to file a final return. Check the box marked "final return" on the face of the income tax return. A corporate return is due on or before the 15th day of the third month after the date of dissolution and a partnership return is due on or before the 15th day of the fourth month after the date of the dissolution. For a corporation, there is no net worth tax due on the final return.
  1. If a company has to file a short period Federal income tax form, does it have to file a short period Georgia income tax return?
  1. Yes. However, please see the exception for mergers and acquisitions in the C-Corporations section below.
  1. What U.S. Government interest is deductible from Federal income?
  1. Interest from Direct Federal Obligations (such as Treasury Bonds & Notes) and other interest that is specifically exempt by Federal statute are not taxed by Georgia (including dividends received from mutual funds that derive income from these sources). Any amount exempted must be reduced by any direct and indirect interest expense attributable to the production of the interest or dividend income. To arrive at such reduction, the total interest expense is multiplied by a fraction, the numerator of which is the taxpayer's average adjusted basis of U.S. obligations, and the denominator of which is the average adjusted basis of all assets of the taxpayer. The interest can not be from third party obligations such as Federal National Mortgage Association (F.N.M.A.), Government National Mortgage Association (G.N.M.A.), etc.
  1. What municipal interest has to be added to Federal income?
  1. Interest received from non-Georgia municipal bonds and dividends received from mutual funds that derive income from non-Georgia municipal bonds must be added to Federal income if it is not already included.
  1. What types of taxes have to be added to Federal income?
  1. Any taxes on, or measured by, net income or net profits paid or accrued within the taxable year imposed by the authority of the United States or any foreign country, and by any state (except the state of Georgia) or by any territory, county, school district, municipality, or other tax subdivision of any state, territory, or foreign country to the extent such taxes are deducted in determining Federal taxable income. In general, these are taxes based upon income.
  1. Has Georgia adopted the Uniform Division of Income for Tax Purposes Act (UDITPA).
  1. No, Georgia has not specifically adopted UDITPA.
  1. Does Georgia follow the Multi-state Tax Commission (MTC) regulations and policies?
  1. No. Georgia is only a sovereignty member.
  1. What are my chances of being audited and what is the time frame for an audit?
  1. Companies are selected on a random basis for audit. The DOR has 3 years after the filing of a return to audit a taxpayer. Tax may be assessed at any time in the case of a false or fraudulent return or a return filed with the intent to evade tax, or the failure to file a return. (See O.C.G.A §48-2-49).
  1. What is required if my tax return is chosen for an audit?
  1. The auditor will ask to see supporting documentation for the income, deductions, exemptions and/or credits reported on the tax return. A taxpayer will receive notification that the return(s) have been selected for audit and generally an audit will be scheduled three to nine months after notification, allowing the taxpayer sufficient time to compile the supporting documentation.
  1. Does Georgia consider the Texas Margin Tax to be an income tax?
  1. No.

General Business Credits

  1. How do I obtain more information on business credits?
  1. For a detailed listing of available incentives and credits, please click here.
  1. Can a BEST credit be applied towards the net worth tax?
  1. No.
  1. Who gets the benefit of tax credits earned by s-corporations or partnerships?
  1. Usually the benefits are passed through to the shareholders or partners.
  1. Can BEST credits be transferred?
  1. 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.
  1. 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?
  1. The law change is applicable to tax years beginning on or after January 1, 2002.
  1. How are transferred credits reflected on corporate returns?
  1. 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 return to make the election to transfer the credit and to specify the affiliate(s) to which the credit is being transferred.
  1. How does a company claim withholding tax credits?
  1. Withholding tax credits require multiple steps to claim. First, Form IT-WH must be filed at least 30 days prior to the earlier of the date the tax return will be filed on which the tax credits will be claimed or the due date of the return. Then, the return is filed on which the credit is actually claimed. Once the tax return is received, DOR will review the return 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 payments. NOTE: The withholding credit does not refund any taxes previously paid.
  1. Is there a limitation on the amount of job tax credit that may be claimed against withholding?
  1. 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.
  1. Can credits be used in aggregate to offset 100% of the tax?
  1. 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).
  1. How are investment tax credits claimed?
  1. 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.
  1. What information should be provided with an investment tax credit application?
  1. 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).
  1. What assets qualify for the investment tax credit?
  1. Only real and personal property qualifies for the investment tax credit.
  1. How is the Port Traffic Credit claimed?
  1. 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.
  1. What vehicles qualify for the low-emission vehicle credit?
  1. 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.
  1. How is the Headquarters Credit claimed?
  1. 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.
  1. How can I find out about new legislation regarding future business tax credits?
  1. Please click here to see new legislation.   
  1. What are the current criteria for qualifying with the Department of Revenue for the Georgia Low Income Housing Credit?
  1. 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.
  1. What should be included with the tax return when claiming the Georgia Low Income Housing Credit?
  1. 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.

Registration, Tax Clearance Letters, etc.

  1. How does a company register to file Georgia Income Taxes?
  1. First, a corporation, limited liability company, limited partnership, and limited liability partnership must contact the Secretary of State to see about incorporating/registering. The Secretary of State can be reached at (404) 656-2817 or www.sos.state.ga.us. For income tax purposes, Georgia uses the Federal Employer's Identification (FEI) number, which is assigned by the Internal Revenue Service. However, the company will need to contact the Georgia Department of Revenue's TAXPAYER SERVICES DIVISION section to get a Sales & Use Tax ID,Withholding Tax ID, and other ID's necessary to operate in Georgia. The TAXPAYER SERVICES DIVISION section can be reached at 1-877-GADOR11 (1-877-423-6711) . Forms to register can be downloaded by clicking here.
  1. What section of the Georgia Department of Revenue administers withholding on employees?
  1. The Withholding section of the Taxpayer Services Division administers withholding on employees. They can be reached at 1-877-GADOR11 (1-877-423-6711) .
  1. My corporation is incorporated in another state, must I register with the Georgia Secretary of State?
  1. Contact the Georgia Secretary of State at (404) 656-2817 or www.sos.state.ga.us for more information.
  1. How do I obtain a Certificate of Good Standing for my corporation?
  1. Certificates of Good Standing are issued by the Secretary of State, please contact them at (404) 656-2817 or www.sos.state.ga.us.
  1. How do I obtain a Tax Clearance letter for corporate income and net worth taxes?
  1. Complete Form TSD-10.
  1. How do I obtain an income tax clearance letter for a partnership or an LLC that is treated as a partnership?
  1. Tax clearance letters are not issued for these entities since the partnership return is filed for information purposes only and no tax is due or payable.
  1. How do I obtain an income tax withholding clearance letter?
  1. Complete Form TSD-10.

C-Corporations

  1. What is the corporate tax rate?
  1. The corporate tax rate is 6 %.
  1. Does Georgia have a minimum corporate income tax?
  1. There is no minimum corporate income tax required. However, there is a minimum net worth tax of $10.
  1. Does Georgia require estimated tax payments?
  1. Yes, if Georgia taxable income exceeds $25,000.
  1. Does Georgia require these payments to be submitted electronically?
  1. Georgia law requires corporate estimated taxpayers with quarterly payments of more than $10,000 to make those payments via electronic funds transfer. Additionally, you can now voluntarily participate in our electronic funds transfer program. For more information, please call 1-877-423-6711, or send an email to doreft@dor.ga.gov.
  1. What number goes in line 1 of Schedule 1 of the Georgia 600?
  1. Federal Taxable Income, which is generally line 30 of the Federal 1120 Form.
  1. How does Georgia treat a Net Operating Loss (NOL)?
  1. Generally, losses can be carried back two years (with special rules for farmers and casualty losses) and forward 20 years. An election made with the IRS to relinquish the entire carry back period and carry a loss forward is a binding election with Georgia. If the company has a separate company Georgia NOL and the Federal consolidated return has positive income the separate Georgia company has to carry the loss back unless they attach a written statement electing to forgo the carry back period. Alternatively they could also check Box 14, Schedule K of their pro forma Federal return they file with the Georgia return to forego the carry back period.
  1. Is it possible to have a Georgia NOL and not a Federal NOL?
  1. Yes, adjustments to Federal income could create a Georgia NOL.
  1. Is it possible to have a Federal NOL and not a Georgia NOL?
  1. Yes, adjustments to Federal income could change the income so that there was not a Georgia NOL.
  1. A corporation that is a member of an affiliated group is sold and becomes a member of a new affiliated group. The IRS requires the corporation to file two short period returns so that each can be included on different consolidated returns. For Georgia purposes the corporation is filing separate returns (not as part of a consolidated return). How should they file with Georgia?
  1. The Department will accept one full year return or they can file two short period returns. If two short period returns are filed, the due date for the first short period is the 15th day of the third month following the close of the short period (up to a six month extension is available, but late payment penalties and interest will accrue). If the taxpayer cannot file the return in time (due to lack of information), we recommend that sufficient payments be sent so that when the return is submitted, penalty and interest charges will not apply.
  1. A corporation that is a member of an affiliated group is merged into another corporation. The new corporation is part of a different affiliated group. The IRS requires the corporation that was merged to file a short period return for the period before the merger but since it is filing as a member of a consolidated group the return is not due until the 15th day of the third month following the end of the consolidated group’s year end. For Georgia purposes the corporation is filing separate returns (not as part of a consolidated return). How should they file with Georgia?
  1. They should file a short year return. The due date is the 15th day of the third month following the close of the short period (up to a six month extension is available, but late payment penalties and interest will accrue). If the taxpayer cannot file the return in time (due to lack of information), we recommend that sufficient payments be sent so that when the return is submitted, penalty and interest charges will not apply.
  1. 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?
  1. 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 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 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 they should enter zero and they should attach a statement that indicates their belief that they fall under the protection of Public Law 86-272.
  1. I file a Form 1120-H with the Federal government. What form should I file with Georgia?
  1. File Form 600 to report income tax information. If not organized for pecuniary gain or profit, a homeowners association is not liable for net worth tax. Write "not organized for profit" in schedule 2 of Form 600. If organized for profit, a homeowners association is liable for net worth tax.

Apportionment and Allocation of Income for Corporations, Partnerships and Limited Liability Companies

  1. What code section and regulation provide guidance in this area?
  1. Georgia Code Section 48-7-31 and regulation 560-7-7-.03 provide guidance in this area
  1. How does Georgia source gross receipts for a company which manufactures, produces, or sells tangible personal property?
  1. Georgia gross receipts are all gross receipts derived by the taxpayer from products shipped or delivered to customers in Georgia in the regular course of its trade or business.
  1. How does Georgia source gross receipts where the business income is derived principally from business other than the manufacturing, production, or sale of tangible personal property?
  1. Please see regulation 560-7-7-.03.
  1. Does Georgia recognize Internal Revenue Code Section 338(h)(10) elections by c-corporations and/or s-corporations for state income tax purposes? How would the state treat the gain/loss arising from a section 338(h)(10) election?
  1. Georgia does recognize the IRC 338(h)(10) election. In this case, the gain on the sale of the stock would not be recognized. Instead there would be a deemed sale of the assets, which would be reported on the target corporation's return. The income would be apportioned and allocated in the normal manner.

Net Worth Tax for Corporations

  1. What is the tax rate for net worth tax?
  1. The tax is a graduated tax, ranging from a minimum $10 up to $5,000 depending on the taxable net worth of the corporation. To determine the appropriate tax, the net worth tax table must be used. The table can be found in the 611 or 611S instruction booklets.
  1. What dates should I use on the corporate return under net worth tax beginning and ending dates?
  1. Net worth tax is computed on the net worth of the corporation from the ending balance sheet and is due at the beginning of the year for the upcoming tax year. The beginning and ending dates for net worth tax would be one year later than the income tax beginning and ending dates. For example, the income tax beginning and ending dates are 1/1/00 through 12/31/00. The net worth tax beginning and ending dates would be 1/1/01 through 12/31/01.
  1. How is the net worth tax determined for a short-period income tax return?
  1. For short periods other than initial or final returns, the tax is computed on the net worth of the corporation from the ending balance sheet of the short period return. The tax is then prorated based on the number of months included in the short period return.
  1. How is the net worth tax determined for an initial or final return?
  1. The Initial Net Worth tax return is due the 15th day of the third month after incorporation or qualification. The net worth reported on this return is as of the date of incorporation or qualification. No income tax information is reported on the Initial Net Worth return. The net worth tax paid on this return covers the period beginning with the date of incorporation or qualification and ending with the end of the first income tax year. If this period is less than 6 months, only the tax as shown in the net worth tax table is due. The second return that is required to be filed is used to report income tax for the period beginning with the date of incorporation or qualification and ending with the corporation's chosen year end and to report net worth tax for the next full year. This return is due on the 15th day of the third month after the end of the income tax year. A full year's net worth tax is always due with this first income tax return. The following example illustrates this. Date of incorporation or qualification, 3/18/00. Accounting year end chosen, 10/31/00. Initial net worth return is due, 6/15/00. This covers 3/18/00 through 10/31/00 and since this is greater than 6 months, a full year net worth tax is due. First income tax return is due, 1/15/01. This covers income tax year 3/18/00 through 10/31/00 and net worth tax year 11/01/00 through 10/31/01.
  1. How can I file the initial net worth tax return two and one half months after incorporation when the IRS has not issued my FEI #?
  1. File the return showing "Applied For" in the box for the Federal Employer ID No.
  1. How are a Qualified Subchapter S Subsidiary (QSSS) and its parent treated for Georgia Net worth tax purposes?
  1. 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.
  1. Is a disregarded single member LLC subject to the Georgia net worth tax?
  1. No. The single member LLC is not subject to the Georgia net worth tax. However, if the owner of the single member LLC is a corporation, the corporation is subject to the Georgia net worth tax if the single member LLC does business or owns property in Georgia.
  1. Is an LLC who files as a partnership subject to Georgia Net Worth tax?
  1. No. There is no Net Worth tax on partnerships.
  1. Is an LLC who files as a corporation subject to Net Worth tax in Georgia?
  1. Yes.
  1. How is net worth tax determined on a corporation incorporated in Georgia that does business both inside and outside the state?
  1. A Georgia corporation or a domesticated foreign corporation is liable for net worth tax on 100% of the taxable net worth. For corporations incorporated in states other than Georgia, a ratio is computed using property and gross receipts within Georgia and the total everywhere.
  1. What kinds of property are included in the net worth apportionment?
  1. The property portion of the net worth ratio is computed as follows. For the "everywhere figure", the ending balance sheet asset figure from the Federal income tax return should be used. For the "within Georgia figure" a "Georgia" balance sheet must be calculated from assets owned in Georgia. For net worth tax purposes tangible and intangible assets, like cash, accounts receivable, allowance for bad debts, accumulated depreciation, etc. are included.
  1. Does a corporation have to file a net worth return on Form 600 or 600S even if the corporate income tax portion of the return does not have to be filed?
  1. Yes, if you do business, own property in Georgia, or are registered with the Secretary of State you must file the net worth portion of the Georgia Form 600 or 600S every year.
  1. Can a BEST credit be applied towards the net worth tax?
  1. No.
  1. What is meant by "foreign" corporation?
  1. A corporation incorporated in another state, territory, or nation.
  1. Are homeowners associations liable for the net worth tax?
  1. If not organized for pecuniary gain or profit, a homeowners association is not liable for the net worth tax. Write "not organized for profit" in schedule 2 of Form 600. If organized for profit, a homeowners association is liable for net worth tax.
  1. For a corporation which has a partnership interest, does the pro rata share of the partnership's receipts and assets also get added to the numerator (if applicable) and the denominator for calculating the net worth tax of the corporation as they do for the calculation of income tax?
  1. Yes. O.C.G.A. Section 48-13-72 imposes a net worth tax on a foreign corporation which is doing business or owning property in this state. The language is nearly identical to the language in O.C.G.A. Section 48-7-31 and Regulation 560-7-7-.03 and as such the same principles apply. Regulation 560-7-7-.03 requires a corporation which is involved in a business joint venture, or which is a partner in a partnership to includes its pro rata share of the joint venture or partnership property, payroll, and gross receipts in its own apportionment formula.

S-Corporations

  1. Does Georgia have its own K-1?
  1. No.
  1. Who gets the benefit of tax credits earned by s-corporations?
  1. Usually the benefits are passed through to the shareholders.
  1. Where do I deduct separately stated expenses (Section 179, charitable contributions, investment expenses etc.) on the s-corporation Form 600S?
  1. 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.
  1. If we file as an s-corporation with the IRS, how do we file with Georgia?
  1. 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.
  1. 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)?
  1. 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).
  1. For income tax purposes, does Georgia follow the Federal treatment for a Qualified Subchapter S Subsidiary (QSSS)?
  1. 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.
  1. Does your state accept an Employee Stock Option Plan (ESOP) as a shareholder for an s-corporation?
  1. Yes.
  1. How is an ESOP shareholder in an s-corporation taxed?
  1. An ESOP shareholder is not taxed unless the income is considered Unrelated Business Taxable Income (UBTI).
  1. 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?
  1. No.
  1. 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?
  1. 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 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 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.

Partnerships

  1. Where do I deduct separately stated expenses (Section 179, charitable contributions, investment expenses etc.) on the partnership Form 700?
  1. Since these items may be subject to further limitations, they are not deducted in the calculation of Georgia net income of the partnership. The portion of these expenses that are attributable to Georgia, that have not been included in the partnership's Georgia net income and that have been allowed on the taxpayer's Federal tax return, can also be subtracted on the partner's Georgia return.
  1. How should guaranteed payments be treated on the partnership return?
  1. The following example illustrates how they should be treated. There are two partners in the partnership. Partner one is a resident of Georgia and owns 25% of the partnership. Partner one receives a guaranteed payment of $10. Partner number two is a nonresident of Georgia and owns 75% of the partnership. Partner two receives a guaranteed payment of $40. The profit and loss sharing ratio is the same as the ownership percentage. The Georgia apportionment ratio on line 4, part 2, schedule 6, of Form 700 is 50%.

Ordinary income before the guaranteed payment

$150

Guaranteed payment

$ 50

Ordinary income placed on line 1, schedule 7, of Form 700

$100

Guaranteed payment placed on line, 5, schedule 7, of Form 700

$ 50

Total income for Georgia purposes, line 12, schedule 7, of Form 700

$150

  1. Partner one (resident) is required to report $35 on their Georgia return. The entire $10 guaranteed payment plus their share of the ordinary income of the partnership $25 ($100 ordinary income placed on line 1, schedule 7, of Form 700 multiplied by their ownership percentage of 25%).Partner two (nonresident) is required to report $57.5 on their Georgia return. The Georgia portion of the guaranteed payment $20 ($40 guaranteed payment multiplied by the Georgia ratio of 50%) plus their share of the Georgia portion of the ordinary income of the partnership $37.5 ($100 ordinary income placed on line 1, schedule 7, of Form 700 multiplied by their ownership percentage of 75% multiplied by the Georgia ratio of 50%).
  1. Does a partnership have to pay net worth tax?
  1. The Partnership Return is an information return only and partnerships are not subject to the net worth tax.
  1. Does Georgia have its own K-1?
  1. No.
  1. Who gets the benefit of tax credits earned by partnerships?
  1. Usually the benefits are passed through to the partners.

Limited Liability Companies

  1. How is an LLC classified in Georgia?
  1. Each limited liability company and foreign limited liability company is classified as a partnership for Georgia income tax purposes unless classified otherwise for Federal income tax purposes, in which case the limited liability company or foreign limited liability company is classified for Georgia income tax purposes in the same manner as it is classified for Federal income tax purposes. Accordingly, Georgia follows the Federal "Check the Box" classifications.
  1. In 1999, Tennessee expanded the type of entities that are subject to the Franchise and Excise tax. In addition to s-corporations, it now includes limited liability companies, limited partnerships, etc. A Georgia resident, who is a shareholder in an s-corporation operating in a state that does not recognize the s-election, can make an adjustment for this income on schedule 1, line 9, of Form 500 if the tax is paid by the corporation. Does this adjustment also apply to a member of a limited liability company (treated as a partnership) or a partner of a limited partnership when the limited liability company or the limited partnership pays the Tennessee Franchise and Excise tax?
  1. Effective for tax years beginning on or after January 1, 2006, an adjustment to income is allowed on Form 500 for a member of a limited liability company or a partner of a limited partnership when the limited liability company or the limited partnership pays the Tennessee Franchise and Excise tax.
  1. Does an LLC have to pay net worth tax?
  1. An LLC is only subject to net worth tax if it is treated as a corporation for income tax purposes.

Withholding and Composite Returns for Nonresident Shareholders, Partners, and Members of S-Corporations, Partnerships and Limited Liability Companies

  1. What code section and regulation provide guidance in this area?
  1. Code Section 48-7-129 and Regulation 560-7-8-.34, Withholding on Distributions to Nonresident Members of Partnerships, S-Corporations, and Limited Liability Companies, provide guidance in this area.