Updated June 27, 2023
The Georgia General Assembly passed new income and sales tax legislation that takes effect in 2023 and beyond after Governor Brian Kemp signed them into law. The new laws aim to provide a more equitable tax system for Georgians and to attract new businesses to the state.
Key highlights of the tax legislation include the following:
- Reduction of the personal income tax rate
- One-time surplus tax rebate
- Pass-through entity (PTE) selection for partnerships
- Decoupling from Internal Revenue Code (IRC) Section 174, beginning in tax year 2022
- Sales tax on digital goods
Annual personal income tax reduction and itemized deduction changes
The Georgia tax statute relaxes lookback conditions in order to trigger personal income tax rate reductions that would begin in 2025. In 2024, taxpayers may also itemize federal return deductions on either their Georgia state tax returns, or they may choose to elect new standard deductions in place of the personal exemption, which has been eliminated. Additionally, a $300 nonrefundable income tax credit will be made available for filers who itemized deductions in order to offset the loss of the personal exemption on their Georgia state tax return.
One-time surplus tax rebate
Governor Kemp signed into law a one-time rebate for taxpayers who filed returns for 2021 and 2022 tax years, including full-time, part-time and nonresidents for the state of Georgia. The rebate will come in the amount of $250 for individual filers, $375 for heads of household and $500 for those married filing jointly. It is expected that payments will start being issued in May 2023, with most payments issued by July 1 for those that filed by April 18.
Expansion of pass-through entity election for partnerships
The limitation that prevented certain partnerships from electing to be treated as a PTE is now removed. Previously, partnerships in Georgia could only elect to be treated as a PTE if all members could otherwise be qualified to own an S-corporation. This prevented a significant number of taxpayers from making the election. Removing this limitation will provide more flexibility for taxpayers wanting to make the election at the operating company level. This change also makes the PTE election in Georgia more similar to that of other states. It is noteworthy that Georgia still remains one of the handful of states that provides a subtraction of Georgia PTE income from its members’ Georgia income as opposed to using a credit mechanism utilized by most other states.
Georgia will decouple from IRC Section 174
Under the Tax Cuts and Jobs Act (TCJA) of 2017, IRC Section 174 removed the option for taxpayers to fully deduct research and experiment (R&E) expenses, meaning they instead capitalized and amortized any R&E costs over the course of five years. New legislation would have Georgia decouple from IRC Section 174, thereby removing required amortization and allowing the deductibility of R&E Expenses for 2022 and tax years to follow. This would subsequently provide a greater tax credit benefit to Georgians in regard to their R&E expenses. Georgia is so far, one of the few states to decouple from the federal changes. Other decoupling states include California, Mississippi, Tennessee and Wisconsin.
Digital goods now subject to imposed sales tax
The retail sales of certain digital products, goods or codes for the purpose of permanent use by an end user would be subject to sales tax, including digital media such as books, video games, magazines and music. The legislation does not apply to streaming and subscription services or electronically delivered software and will be effective on Jan. 1, 2024
Windham Brannon can help
The new state tax changes for Georgia mean taxpayers may take advantage of certain opportunities to improve their state tax situation, particularly in the area of R&E expenses and pass-through entity selection. Windham Brannon’s state and local tax practice have the technical expertise to help you identify the best opportunities for you and your business. For more information on the state tax changes, contact your advisor or reach out to Tim Clancy.
