In early May, the Georgia Legislature renewed and expanded its commitment to bringing innovation home. HB 868 , signed into law on May 3, 2012, contained a number of job-enhancing credits, including an amendment to the State research and development credit. The Georgia R&D credit contains a particularly favorable provision that allows a taxpayer to apply the credit against payroll tax liability. Credits are a dollar-for-dollar offset against tax liability, and as such require tax liability to be utilized. Normally, tax credits can be applied only to income tax liability, but in years with no tax liability, the credit must be carried forward rather than used currently.
Georgia allows R&D credits to be applied against payroll withholding tax liability, which profoundly expands the utilization potential of these State credits; even in loss years, companies must pay over their withholding on employee salaries, so eligible companies will almost always be able to use at least a portion of the credit currently, keeping cash in the business to invest in the innovation that drives America’s, and Georgia’s economy.
Until HB 868, use of the Georgia R&D credit against payroll liability was artificially limited to emerging companies during their first five years. The new bill expands the credit to all qualifying companies regardless of the year of existence. Qualifying companies are defined for the credit as a “business enterprise” that is within specified North American Industry Classification System designations; the new bill specifies that eligible companies include those in alternative energy (including solar, wind, biofuel, electric cars and vehicles), biomedical and biotech, telecommunications, and research and development. Companies that engage in both qualified and non-qualified activities can still claim the credit against their qualified operations.
To use the credit against payroll liability, a company must make an election at the time they file their return; it is critical that eligible businesses seek out an experienced tax advisor who can not only calculate the credit, but can engage with all stages of the process from maximizing utilization potential down to tracking the mechanical requirements that are so easily overlooked. For more information on how your company can claim the Federal and State Research and Development Credits, contact alliantgroup at 1.800.564.4540, or via our website.