Legislative Update: Georgia and Tennessee

Several new notable Georgia and Tennessee tax bills have recently been passed.

By Jess Johannesen, SALT senior associate

With the Georgia Legislative Session recently adjourning, several notable tax bills have been signed by Governor Nathan Deal, and they are briefly summarized below: [1]

  • House Bill 63 [2] – Signed and effective May 1, 2015 – The Georgia statute relating to the basic skills education program credits has been amended to provide a Georgia income tax credit to employers who provide or sponsor an approved education program equivalent to the GED test. The credit is currently set to expire on Jan. 1, 2020.
  • House Bill 170 [3] – Signed May 4, 2015 and effective July 1, 2015 – The “Transportation Bill” has been publicized for the new excise tax imposed on motor fuel and diesel fuel within the state. In tandem with the excise tax, an annual registration fee for alternative fueled vehicles will be imposed. However, the bill provides for other notable tax-related items. First, the Georgia income tax credit for new low-emission or zero-emission vehicles will no longer be available for such vehicles purchased on or after July 1, 2015. Second, the bill authorizes the creation of a Special Joint Committee on Georgia Revenue Structure, and that committee has been tasked with setting forth proposals relating to tax reform.
  • House Bill 202 [4] – Signed and effective May 6, 2015 – Comprehensive tax reform relating to ad valorem taxation.
  • House Bill 237 [5] – Signed May 5, 2015 and effective July 1, 2015 – The Angel Investor Tax Credit has been amended to extend the tax credit for qualified investments directly in a qualified business. The tax credit is claimed in the second year following the year in which the qualified investment was made, and previously the credit was only allowed for investments until the end of the 2015 calendar year. The tax credit has been extended for investments made through the 2018 calendar year which would be claimed through the 2020 tax year.
  • House Bill 292 [6] – Signed and effective March 6, 2015 – The Georgia statute which provides the conformity rules to the Internal Revenue Code defines the effective date and applicability of federal tax law. Georgia defines the “Internal Revenue Code” for the 2014 tax year to mean the federal law enacted on or before Jan. 1, 2015. Consequently, Georgia adopts the federal rules for Section 179 expensing of $500,000 for the 2014 tax year. While Georgia conforms to the federal laws enacted as of Jan. 1, 2015, it is worth noting that any federal laws enacted after Jan. 1, 2015 which are retroactively applied to tax years beginning on Jan. 1, 2015, would not be followed by Georgia.
  • House Bill 339 [7] – Signed and effective April 30, 2015 – The Georgia statute relating to the film, video or digital production tax credit has been amended to extend the tax credit available to “qualified interactive entertainment production companies,” or those companies that utilize the tax credit for digital productions such as games and apps. The tax credit was set to expire after the 2015 tax year, but the $12.5 million annual cap for the total amount of said tax credit allowed to qualified interactive entertainment companies remains through the 2018 tax year. The bill also amends the procedures for allocating the $12.5 million cap, which previously utilized a first-come, first-serve basis, depending upon the date that the Georgia income tax returns were filed. The new procedures require taxpayers to submit an application to the commissioner for preapproval, and the commissioner will preapprove the tax credits based upon the submission date of properly completed applications. Lastly, beginning with the 2016 tax year, a qualified interactive entertainment production company that claim the tax credit will be required to provide additional reporting information with its Georgia income tax return. Such companies will need to include the monthly average number of full-time employees subject to Georgia income tax withholdings for the current tax year as well as each of the two previous tax years.

Tennessee has also passed significant tax legislation. House Bill 0644, called the Revenue Modernization Act was signed by the Governor on May 20, 2015. [8] It amended the Tennessee Franchise & Excise Tax effective for tax years beginning on or after Jan. 1, 2016. A couple of those amendments are particularly noteworthy. First, the bill redefines “substantial nexus in this state,” adding Tennessee to the list of states that have adopted a version of the factor-presence economic nexus rules that are currently used in states such as California, Colorado, Connecticut, Michigan, New York (beginning in the 2015 tax year), Ohio and Washington. This type of nexus is termed “factor-presence” nexus because it relies upon bright-line thresholds using one or more of the factors used for income tax apportionment (sales, property and/or payroll) to determine nexus (e.g., having a certain amount of sales in the state, without any physical presence would create nexus). Each state varies on what factors and thresholds are used for determining nexus.

Second, the bill changes Tennessee’s apportionment sourcing rules for sales of services from the current cost-of-performance method to a market-based method. This change reflects another trend among the states to source the sales of services to the location of the customer who receives the benefits of the service, as opposed to sourcing service revenue to the location where the service is performed. As a result of these amendments, taxpayers that previously had not filed in Tennessee due to not having any physical presence in the state may find themselves meeting the factor-presence nexus rules, thereby creating a franchise and excise tax filing requirement and potential tax liability. In addition, the new market-based sourcing rules may increase the tax liability for taxpayers that sell services to Tennessee customers but who provide that service outside of the state.

As the state tax landscape continues to evolve with new tax laws and new trends spreading from state to state, state tax compliance becomes more challenging for the numerous state taxes. Understanding how these rules may impact your tax liability will allow you and your company to budget and plan accordingly. HA&W’s SALT team can help you and your company navigate through these complex multistate issues.

Contact Jess Johannesen, SALT senior associate, at jess.johannesen@aprio.com or Jeff Glickman, partner-in-charge of HA&W’s SALT practice, at jeff.glickman@aprio.com for more information.

[1] Governor Deal vetoed one notable tax bill, House Bill 439, which included a provision authorizing the Invest Georgia Fund to raise capital by selling premium tax credits to insurance companies doing business in Georgia. The Invest Georgia Fund is a state-owned venture capital fund established to invest in Georgia. For further information about the bill, including its text, click here.

[2] See GA House Bill 63 (for further information about the bill including its text, click here).

[3] See GA House Bill 170 (for further information about the bill including its text, click here).

[4] See GA House Bill 202 (for further information about the bill including its text, click here).

[5] See GA House Bill 237 (for further information about the bill including its text, click here).

[6] See GA House Bill 292 (for further information about the bill including its text, click here).

[7] See GA House Bill 339 (for further information about the bill including its text, click here).

[8] See TN House Bill 0644 (for further information about the bill including its text, click here).

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 this matter.

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