Despite a flurry of last-minute activity at the end of Georgia’s 2017 legislative session, the House and Senate failed to reach a consensus in the final hours on much of the major tax legislation considered during the session, including reduction of the individual income tax rate, remote sales tax collection, sales tax treatment of transportation companies and treatment of refunds for direct payment permit holders, among others. However, tax legislation passed during the session would have an important impact on telecommunications, film production and music production companies, and will cause the review of all current income and sales and use tax exemptions. Passed legislation will become law unless vetoed by the Governor within 40 days after the legislature’s March 30, 2017 adjournment.
Significant Tax Legislation Passed
- S.B. 222. Senate Bill 222 makes substantial changes to Georgia’s 9-1-1 laws regarding the administration, imposition and collection of 9-1-1 charges by telephone service providers.1 The legislation would create a new state-level agency (the Local Government 9-1-1 Authority) that would be empowered, in conjunction with the Georgia Department of Revenue, to audit and collect monthly 9-1-1 charges from telephone service providers on behalf of local governments. Additionally, beginning January 1, 2019, S.B. 222 would provide that each “separate simultaneous outbound call voice channel capacity” will constitute a separate “telephone service” subject to Georgia’s 9-1-1 fees.
- H.B. 199. Following Georgia’s success with its credits for film production, H.B. 199 offers similar Georgia income tax credits for “postproduction” activities.2 Under H.B. 199, a qualified “postproduction company” that has more than $250,000 in Georgia payroll and that incurs postproduction expenditures in excess of $500,000 in a year may qualify for a credit worth 20% of such postproduction expenses, with an additional 10% credit available if the expenses were incurred in Georgia.
- H.B. 155. Similar to Georgia credits for film production, H.B. 155 offers income tax credits for “musical” production companies that meet specified payroll and capital expenditures.3 The qualifying spending thresholds vary depending on the type of musical production (e.g., a musical or theatrical performance, a recorded performance to be incorporated in a movie, etc.). The credit would be equal to 15% of such qualifying production company’s expenditures in the state, with an additional 5% credit if the expenditures are incurred in counties designated tier 1 or tier 2 by the Georgia Department of Community Affairs.
- S.R. 222. Senate Resolution 222 creates the Senate Special Tax Exemption Study Committee, which will be tasked with examining the “costs and benefits” of all exemptions for Georgia sales and use taxes and income taxes, and with making recommendation on whether to maintain, modify or repeal any existing exemptions.4 The Senate Committee’s report of its findings and recommendations must be submitted by December 1, 2017.
- H.B. 283. This legislation effectively conforms Georgia’s tax code to the Internal Revenue Code in effect for tax years on or after January 1, 2016.5 As originally introduced, the bill would have applied the new federal Internal Revenue Service partnership audit regime by taxing entities at the partnership level and by applying any elections made, including the federal push-out election and pay-up procedure, for state purposes.6 These provisions were ultimately removed in the enacted version that was signed by Governor Nathan Deal on March 21, 2017.
Significant Tax Legislation That Stalled
A version of each of the following tax bills was considered by the Georgia General Assembly and passed by the House, but ultimately not passed during the 2017 legislative session:
- H.B. 93 would have codified Georgia’s direct payment permit program and clarified current law providing for the payment of interest on sales and use tax overpayments by direct payment permit holders, while limiting interest in instances where the tax liability is overpaid by 20% or more in a period (subject to good faith exceptions). H.B. 93 easily passed the House in the form adopted by the House Ways and Means Committee, but it, and the subsequently amended version, S.B. 216 (which reduced the threshold to 15% and included H.B. 181), failed to pass the Senate.
Eversheds Sutherland Observation: H.B. 93 was proposed in light of the Georgia Department of Revenue’s regulation promulgated in 2016 for direct payment permit holders. Among other requirements, the Department’s regulation requires direct payment permit holders to agree to waive interest on refund claims in order to maintain or obtain a direct payment permit.
On behalf of the Georgia Association of Manufacturers, Eversheds Sutherland testified in favor of H.B. 93 before the House Ways and Mean and Senate Finance committees and previously submitted formal comments and testified in opposition to the regulation’s uneven tax policy of denying interest on overpayments for direct payment permit holders. H.B. 93 would have largely adopted the Department’s regulation, but corrected the uneven application of interest for assessments and refunds, where uniform treatment has long been the policy of the state.
- H.B. 329 would have decreased the top individual income tax rate of 6% (to 5.45% in the House version and to 5.65% in the Senate version), as well as increased personal exemption amounts and indexed exemption and deduction amounts for inflation. In an effort to make the individual income tax reductions “revenue neutral,” the Senate combined H.B. 329 with H.B. 61, which would have imposed “economic nexus” sales tax obligations on out-of-state sellers meeting an annual threshold of $250,000 in gross revenue or 200 retail sales in Georgia. In lieu of collecting Georgia sales tax, H.B. 61 would require the out-of-state seller to issue each customer a notice of Georgia use tax due, with a copy to the Department of Revenue. The House and Senate were unable to reconcile their differences regarding this bill.
- H.B. 225, as passed by the House, addressed sales and use tax on amounts collected from a “ride share network service.” The version passed by the Senate would have exempted all transportation and ride share network services from sales and use taxes. The House and Senate were unable to reconcile their differences regarding this bill.
- H.B. 181 originally would have permitted any county, consolidated government or municipality to obtain taxpayers’ sales and use tax returns from the Department for the purpose of researching sales and use tax errors, underreporting, misuse of exemptions, sales and use tax avoidance, and fluctuations in remittances. The revised version passed by the House limited the information provided by the Department to that on a vendor’s sales tax certificate (which is already publicly displayed at each taxpayer’s business location). Under the revised version passed by the House, the municipality would also be permitted to request the Department to “validate” that the sales tax being collected from a taxpayer is being remitted to the proper political subdivision. The Senate failed to pass any version of this bill.
Eversheds Sutherland Observation: Based upon the bills introduced in the 2017 legislative session, Georgia has joined the trend seen in other states of proposing to reduce income tax rates, impose remote seller nexus provisions, address online marketplaces and expand the sales tax base. Taxpayers should expect any stalled legislation to be re-introduced in the next legislative session.