Georgia Research & Development Credit
Georgia follows the same interpretation of “qualified research” as Section 41 of the Internal Revenue code. The Georgia Research and Development credit is calculated as 10% of the excess of the Georgia qualifying research expenses (“QREs”) over a base amount. The base amount is the product of a business’ Georgia gross receipts in the current taxable year and the average of the ratios of its aggregate qualified research expenses to Georgia gross receipts for the preceding three taxable years or .300, whichever is less.
The Georgia R&D credit is nonrefundable and can be used to offset up to 50 percent of net Georgia income tax liability, after all other credits have been applied. Any unused R&D tax credits can be carried forward for up to 10 years.
Georgia Payroll Withholding Offset
Historically, since the R&D tax credit is nonrefundable, many small business taxpayers without tax liability were unable to recognize the benefits of the R&D tax credit. In order to better serve the credit’s purpose in providing relief for taxpayers engaging in qualified research, the state of Georgia permits excess R&D tax credits to be used against state payroll withholding. Taxpayers must file Form IT-WH: “Notice of Intention to Claim Withholding Benefit”, notifying the Georgia Department of Revenue of their intent to use the credit against withholding payments 30 days before their original or extended return is due, whichever is later.
Georgia’s Form IT-WH can be filed online through the taxpayer’s Georgia Tax Center account or via a paper filing. We highly recommend filing online, as it can take more than a year for a paper-filed IT-WH to be processed and approved.
The R&D tax credit rules are highly complex and many credit claims have been subject to substantial audit and litigation by the Internal Revenue Service and applicable state authorities. If you think your business may qualify for this lucrative tax benefit, we recommend that you seek guidance from our R&D tax credit experts.