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Georgia’s Pro-Business Tax Formula
The State of Georgia levies a flat rate of 6% on all corporate income.
State Corporate Income Tax Apportionment Formula (% of Federal Income Taxable by the State):
In the U.S., states use a method called “apportionment” to determine how much of a company’s tax base (i.e. federal taxable income) will be subject to their state corporate income tax rate(s). There are three apportionment factors of the traditional “state corporate income tax formula”: 1.) sales factor (net income or gross profits/receipts), 2.) property factor, and 3.) payroll factor. Georgia uses the “single factor apportionment” formula which only taxes net income (i.e. gross receipts after operating expenses AND costs of goods sold have been deducted). Georgia’s “single factor apportionment” formula provides the most corporate income tax savings.
Corporate Income Tax Base (Net Income vs. Gross Receipts Tax Base):
Georgia imposes a “Net Income Tax” which only taxes the net income of a company (i.e. a company’s gross receipts after all operating expenses AND cost of goods sold have been deducted). In contrast to the “Net Income Tax”, some states impose a “Gross Receipts Tax” which taxes gross receipts – essentially taxing gross profits (i.e. revenue or sales). Less corporate income is subject to taxation in “Net Income Tax” states, like Georgia, when compared with “Gross Receipts Tax” states since the net income of a company represents a smaller tax base than the gross receipts of a company which typically does not deduct operating expenses.
Accounting for High Expenses/Costs – Net Operating Loss (NOL) Benefit:
Net Operating Loss (NOL) carry-back and carry-forward provisions allow businesses to carry their losses forward or back to reduce their tax base/taxable income in a given year. Georgia gives businesses 20 years to carry-forward an unlimited amount of losses. Georgia also gives businesses the option to carry-back an unlimited amount of losses for up to 2 years.
No Taxation on Out-of-State Gross Receipts – “Throwback Rule” Not Enforced:
States also have the option to enforce the “throwback rule” – meaning that if a corporation earns income that is not taxed by a state in which it has facilities then that income is “thrown back” and taxed in the state where the company has facilities and corporate taxation is enforced. Georgia DOES NOT enforce the throwback rule and therefore does not tax out-of-state gross receipts.
Franchise or Corporate Net 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.