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Georgia Tax Formula Advantage
SINGLE FACTOR APPORTIONMENT
In 2005, Georgia became the first state in the Southeast to adopt a “Single Factor Gross Receipts” apportionment formula. As indicated by its name, the “Single Factor Gross Receipts'” formula will treat a company’s Gross Receipts, or sales factor, as the only relevant factor in determining the portion of that company’s income that is subject to Georgia income tax.
Previously, Georgia used a three-factor apportionment formula, but for the 2008 tax year and thereafter, Georgia property and payroll will not factor into the calculation of a company’s corporate income tax. This new single sales factor apportionment formula significantly reduces the effective rate of Georgia income taxation of Georgia-based manufacturing, distribution and service companies with substantial sales to customers outside Georgia.
Example: Assume that, for the 2017 tax year, In-State Manufacturing Co., Inc. has the following total overall taxable income and gross receipt sales in Georgia as compared to total gross receipt sales:
Taxable Income: $10 million
Percent of Gross Receipts in Georgia: 13%.
Accordingly, in 2017, only $1.3 million of In-State Manufacturing Co., Inc.’s income would be subject to Georgia’s 6% corporate income tax under the new Single Factor Gross Receipts formula. [($10 million x 13%) x 6%] = $78,000 corporate income tax liability. In addition, Georgia does not use the so-called “Throw Back Rule,” under which many states tax income from sales of goods or services to out of state customers.
FRANCHISE OR CORPORATE NEW WORTH TAX
The annual tax based on net worth (capital stock + retained earnings) is called a license or occupational tax in Georgia. Most states refer to the tax on net worth either as a franchise or privilege tax. Domestic corporations are taxed on 100 percent of net worth. Foreign (out-of-state) corporations are taxed only on net worth apportioned to Georgia. This tax is capped in Georgia at a maximum amount of $5,000 annually.