Georgia Department of Revenue Issues a Potpourri of Income Tax Guidance

The Georgia Department of Revenue issued guidance on GILTI and FDII as well as the impact of the United States Supreme Court’s decision in Kaestner regarding trust nexus, and it has published amendments to the Rural Hospital Tax Credit regulations.

By Jeff Glickman, SALT Partner

Over the last couple of months, the Georgia Department of Revenue (“DOR”) revised a policy bulletin addressing issues related to the Tax Cuts and Jobs Act (“TCJA”), issued a new policy bulletin in response to the United States Supreme Court’s opinion in North Carolina v. Kaestner, and published amended regulations for the rural hospital tax credit in connection with IRS guidance in connection with the state and local tax itemized deduction limitation.  These items are summarized below.

Exclusion For Foreign-Source Dividends

In 2018, following the enactment of the TCJA, the DOR issued Policy Bulletin IT 2018-01 to address the Georgia income tax treatment of the newly-enacted transition tax under section 965 of the Internal Revenue Code (“IRC”) for the 2017 tax year.  On Aug. 13, 2019, the DOR updated that guidance to address GILTI and FDII under IRC sections 951A and 250.

Specifically, the state clarifies that under Georgia statute section 48-7-21(b)(8)(A), income included in federal taxable income of a C-corporation under IRC section 951A net of the deduction under IRC section 250 (i.e., GILTI), is subtracted from federal taxable income for Georgia income tax purposes.  However, that subtraction amount is reduced by expenses directly attributable to that net GILTI amount.  Georgia also conforms to the deduction for FDII under section 250 for C-corporations.

The DOR refers taxpayers to a chart at the end of the bulletin that addresses Georgia’s treatment of foreign-source dividend income for C-corporations and other taxpayers.

Effect of Kaestner Decision on Non-resident Fiduciaries

In our June 2019 SALT Newsletter, we wrote an article summarizing the United States Supreme Court’s opinion in North Carolina v. Kaestner.  In that case, the Court held that a state was prohibited from taxing a trust based solely on the presence of a resident beneficiary in limited situations where the resident beneficiary (i) did not receive any income under the trust, (ii)  had no right to demand trust income or otherwise control, possess, or enjoy the trust assets, and (iii) could not count on receiving any amount of income or assets from the trust in the future.

Georgia statue section 48-7-22 imposes income tax upon non-resident fiduciaries that, among other things, “manage funds or property for the benefit of a resident of this state.”  In recognition of the Kaestner decision and its limited applicability, the DOR issued Policy Bulletin IT-2019-02, in which it stated: “Although the Department must follow the Kaestner decision, it is limited in scope to the facts in that case.  Therefore, with respect to facts that are specifically like those in Kaestner, a non-resident trust fiduciary would not be subject to Georgia taxation.”

Rural Hospital Tax Credit – Amended Regulation

In Sept. 2019, the DOR amended regulation 560-7-8-.57 regarding the Rural Hospital Tax Credit.  In addition to some reporting revisions consistent with recent legislative changes to the credit statute,[1] the amendments make the following noteworthy changes applicable for tax years beginning on or after Jan. 1, 2019:

[2] See 2019 Legislative Session H.B. 321 and H.B. 186

  • When a pass-through entity (“PTE”) that has no Georgia income tax liability contributes to qualifying rural hospital organization, the credit will be considered to be earned by the owners of such PTE based on their profit/loss percentage at the end of the year. All credit forms (preapproval, claiming and reporting) must be filed in the name of the owner.[1]
  • As of June 26, 2019, changes to the Georgia Tax Center removed the requirement for donors to report their contributions to the DOR. Therefore, reports due on or after that date will no longer be required.
  • To the extent that an individual taxpayer that contributes to a rural hospital is permitted a federal itemized deduction for some or all of that contribution as a state tax payment instead of a charitable contribution, the taxpayer must add back such deduction to federal adjusted gross income for purposes of calculating the taxpayer’s Georgia income. This amendment addresses a safe-harbor rule in the final IRS guidance on the deductibility of these type of contributions that may permit the taxpayer to deduct some or all of that contribution as a state tax payment to the extent that the taxpayer had not reached the $10,000 limit.

Taxpayers should contact their tax advisors to understand the potential implication of this guidance to their Georgia income tax liability.  We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the September 2019 SALT Newsletter.

[1] See 2019 Legislative Session H.B. 321 and H.B. 186

[2] Whether or not a contribution to a rural hospital by a PTE is treated as deductible as an ordinary and necessary expense under IRC section 162 is governed by federal tax rules.  See Treas. Reg. 1.170A-1(c)(5) and IRS Rev. Proc. 2019-12.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.