GA Enacts Expanded State R&D Tax Credit

May 15, 2012 - PRLog -- On May 8, 2012, Georgia Governor Nathan Deal signed into law Georgia House Bill 868 expanding the research and development tax credit available to Georgia businesses. In addition to offsetting their Georgia income tax liability, the new law will allow all Georgia companies to potentially claim a tax credit against Georgia payroll tax withholding obligations.

The R&D Tax Credit generally permits a company to offset up to 50% of its Georgia income tax liability based upon increased spending on research and development activities. Prior to the enactment of this legislation, emerging businesses that have operated in Georgia for five years or less were permitted to use the tax credit against not only 50% of their income tax liability, but could use any excess credit to offset their Georgia payroll withholding tax obligations. This incentive allowed start-up companies with little or no income tax liability to nevertheless take advantage of the R&D Tax Credit. House Bill 868 removes the five years or less qualification and extends this ability to use excess R&D credits to offset payroll tax withholdings to all Georgia businesses.

The R&D Tax Credit amount is 10% of the amount by which qualified research and development expenses in a year exceed a base amount. The base amount is the gross receipts for the year multiplied by a ratio of R&D expenses in each of the prior 3 years compared to gross receipts in those years. Beginning in 2012, if the credit exceeds 50% of the business’ Georgia income tax liability, it may be applied to the business’ quarterly or monthly Georgia payroll withholdings, regardless of the old five year limitation. Notably, this new development allows any Georgia company which may have little or no income tax liability to take advantage of the R&D Tax Credit by offsetting their Georgia payroll tax withholding obligations.