When do Georgia income-tax-credit carryforward periods run after excess credits are approved for use against withholding, and must quality-jobs, film, and research credits be used in a set order?

Plain-English summary

A disregarded single-member LLC expected to generate more Quality Jobs Tax Credit (QJTC), Film Tax Credit (FTC), and Research Tax Credit (RTC) than its corporate owner could use against Georgia income tax. The LLC separately filed Georgia employment-tax returns and planned to elect the withholding benefit by timely filing Form IT-WH and waiting for the Department's authorization. It asked how long approved credits remain usable against withholding and whether the three credits must be applied in a particular order.

The Department ruled:

• Income-tax carryforwards follow each credit's statute. The carryforward period for use against income-tax liability is whatever period the particular credit statute provides.
• The withholding clock starts from the approval letter. For an amount approved against withholding, the carryforward begins with the first withholding period after the period identified in the Department's approval letter and ends the statutorily specified number of years later.
• No fixed ordering applies after approval. Once the Department issues the withholding approval letter, the taxpayer may choose the order in which it uses FTC, QJTC, and RTC against withholding. The taxpayer should state which credit it is using on each withholding return.

For the RTC, the ruling notes that its statutory ordering rule and 50-percent income-tax limitation are applied before the remaining excess is authorized against withholding.

What this means for you

Businesses electing the withholding benefit

Do not calculate the withholding-use expiration solely from the year the underlying credit was earned. Under this ruling, the relevant period begins after the withholding period stated in the Department's approval letter. Keep the letter because it anchors the start date.

Payroll and tax departments

After approval, coordinate which credit is used on each withholding return and identify it expressly. The ruling did not impose an order among the three approved credits, so the taxpayer controlled the sequence.

Disregarded single-member LLCs

The cited regulations limit the withholding benefit to liability attributable to wages paid by the disregarded LLC. The ruling's facts involved an LLC disregarded for income tax but regarded for Georgia employment-tax reporting.

Common questions

Q: Does moving a credit from income-tax use to withholding change its statutory carryforward length?

A: The statutory number of years still controls. What changes is the starting point for withholding use: the first withholding period after the period named in the approval letter.

Q: How did the Department illustrate the Quality Jobs Tax Credit period?

A: Its example assumed 70 new quality jobs created in 2010 and approval to begin using withholding in the first quarter of 2012. The ten-year period began April 1, 2012, the first day of the next withholding period, and expired March 31, 2022.

Q: Must film, quality-jobs, and research credits be used against withholding in a fixed order?

A: No. After the approval letter, the taxpayer could choose their order because the applicable statutes and regulations did not specify a withholding-use sequence among those credits.

Q: Does the Research Tax Credit's 50-percent limitation disappear?

A: No. The ruling says that limitation and the credit-order calculation are applied before the excess RTC is allowed against withholding.

Q: Can approved withholding credits be applied retroactively to obtain refunds of prior withholding payments?

A: The quoted regulations say the Department treats approved amounts as credits against future withholding payments and does not refund previous withholding payments.

Q: Can another taxpayer rely on this ruling?

A: No. It has no precedential value except for the recipient and specific transaction and may become invalid if the represented circumstances materially change.

Citations and references

Statutes and regulations:

• O.C.G.A. § 48-7-40.12(d)-(e) -- Research Tax Credit carryforward and withholding benefit
• O.C.G.A. § 48-7-40.17(b), (d) -- Quality Jobs Tax Credit withholding benefit and ten-year carryforward
• O.C.G.A. § 48-7-40.26(f)(1), (h)(3) -- Film Tax Credit withholding benefit and five-year carryforward
• O.C.G.A. § 48-7-103 -- quarterly or monthly withholding payments
• Revenue Regulation 560-7-8-.42(5)(a), (6) -- Research Tax Credit election and carryforward
• Revenue Regulation 560-7-8-.51(7)(b) -- Quality Jobs Tax Credit withholding election
• Revenue Regulation 560-7-8-.45(10)(b) -- Film Tax Credit withholding election

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2014-05

Original ruling text

Georgia Letter Ruling:
Topic:
Date Issued:

LR IT-2014-05
Withholding Tax Benefit for Credits
December 19, 2014

This letter is in response to your letter requesting a ruling regarding the carry forward period for using income tax
credits against withholding tax liability.
Facts as Presented by the Taxpayer
Your letter to the Department states: “Taxpayer 1 is a limited liability company that is solely owned by Taxpayer 2,
and is treated as a disregarded entity for both federal and Georgia income tax purposes. Taxpayer 2 includes
Taxpayer 1’s income/losses on its Form 600, Georgia Corporation Tax Return.
“Taxpayer 1 is anticipated to generate [Quality Jobs Tax Credit] QJTC, [Film Tax Credit] FTC, and [Research Tax
Credit] RTC that will exceed the amount of Taxpayer 2’s corporate income tax liability and, thus, be eligible to be
used against withholding tax. Taxpayer 1 will submit form IT-WH, Notice of Intention to Claim Withholding
Benefit, no later than 30 days prior to the due date for filing the Georgia Corporate Income Tax Return of Taxpayer
2, and will not begin to claim such credits against withholding tax until receipt of a letter from the Department
granting authorization to do so.
“Although Taxpayer 1 is a disregarded entity for Georgia income tax purposes, Taxpayer 1 is regarded for Georgia
employment tax reporting purposes. Taxpayer 1 files quarterly form G-7, Employer’s withholding Quarterly
Return.”
Issue #1
Whether the same carry forward period applies when an income tax credit is claimed against withholding tax
liability that applies when an income tax credit is claimed against income tax liability, and if so how is the credit
carry forward period determined to expire in the context of a credit against withholding tax liability?
Issue #2
Whether there is an order in which the research tax credit, quality jobs tax credit, and film tax credit must be used
when these credits are being claimed against withholding tax liability?
Authorities
Georgia Code § 48-7-40.12(d) and (e) provide that:
“(d) Any unused credit claimed under this Code section may be carried forward ten years from the
close of the taxable year in which the qualified research expenses were made. The credit taken in
any one taxable year shall not exceed 50 percent of the business enterprise's remaining Georgia
net income tax liability after all other credits have been applied.
(e) Where the amount of a credit claimed under this Code section exceeds 50 percent of the
business enterprise's remaining Georgia net income tax liability after all other credits have been
applied in a taxable year, the excess may be taken as a credit against such taxpayer's quarterly or
monthly payment under Code Section 48-7-103. Each employee whose employer receives credit
against such taxpayer's quarterly or monthly payment under Code Section 48-7-103 shall receive
a credit against his or her income tax liability under Code Section 48-7-20 for the corresponding
taxable year for the full amount which would be credited against such liability prior to the
application of the credit provided for in this subsection. Credits against quarterly or monthly
payments under Code Section 48-7-103 and credits against liability under Code Section 48-7-20
established by this subsection shall not constitute income to the taxpayer.”
Revenue Regulation 560-7-8-.42(5)(a) and (6) provide that:

LR IT-2014-05
Withholding Tax Benefit for Credits
December 19, 2014

“(a) Withholding tax. A business enterprise whose credit amount exceeds 50 percent of the
business enterprise’s remaining Georgia net income tax liability after all other credits have been
applied may elect to take the excess credit as a credit against such business enterprise’s quarterly
or monthly withholding payments under Code Section 48-7-103. The withholding tax benefit may
only be applied against the withholding tax account used by the business enterprise for payroll. In
the event the business enterprise is a single member limited liability company that is disregarded
for income tax purposes, the withholding tax benefit may only be applied against the withholding
tax liability that is attributable to wages paid by the single member limited liability company. A
business enterprise must notify the commissioner each year of their irrevocable election to take all
or a part of the credit against the quarterly or monthly withholding tax payment for such business
enterprise. When this election is made, the excess research tax credit will not pass through to the
shareholders, partners, or members of the business enterprise if the business enterprise is a passthrough entity.

1. Notice of Intent. To claim any excess tax credit not used on the income tax return against the
   business enterprise’s withholding tax liability, the business enterprise must file Revenue Form ITWH at least thirty (30) days prior to the due date of the Georgia income tax return (including
   extensions) or at least thirty (30) days prior to the filing of the income tax return, which-ever
   occurs first. Failure to file this form as indicated will result in disallowance of the withhold-ing
   tax benefit.
2. Review Period. The Department of Revenue has one hundred and twenty (120) days from the
   date the income tax return claiming the tax credit is received to review the credit and make a
   determination of the amount eligible to be used against withholding tax.
3. Letter of Eligibility. Once the review is completed, a letter will be sent to the business
   enterprise stating the tax credit amount which may be applied against withholding and when the
   business enterprise may begin to claim the tax credit against withholding tax. The Department of
   Revenue shall treat this amount as a credit against future withholding tax payments and will not
   refund any previous withholding payments.
   (6) Carry Forward. Any credit which is claimed but not used in a taxable year shall be allowed
   to be carried forward for ten years from the close of the taxable year in which the qualified
   research expenses were made.”
   Georgia Code § 48-7-40.17 (b) provides in part that:
   “[W]here the amount of such credit exceeds a taxpayer's liability for such taxes in a taxable year,
   the excess may be taken as a credit against such taxpayer's quarterly or monthly payment under
   Code Section 48-7-103 but not to exceed in any one taxable year the credit amounts in paragraphs
   (1) through (5) of this subsection for each new quality job when aggregated with the credit
   applied against taxes under this article. Each employee whose employer receives credit against
   such taxpayer's quarterly or monthly payment under Code Section 48-7-103 shall receive a credit
   against his or her income tax liability under Code Section 48-7-20 for the corresponding taxable
   year for the full amount which would be credited against such liability prior to the application of
   the credit provided for in this subsection. Credits against quarterly or monthly payments under
   Code Section 48-7-103 and credits against liability under Code Section 48-7-20 established by
   this subsection shall not constitute income to the taxpayer.”
   Georgia Code § 48-7-40.17(d) provides that:
   “(d) Any credit claimed under this Code section but not used in any taxable year may be carried
   forward for ten years from the close of the taxable year in which the new quality jobs were
   established.”

LR IT-2014-05
Withholding Tax Benefit for Credits
December 19, 2014
Revenue Regulation 560-7-8-.51(7)(b) provides that:
“(b) Withholding tax. A taxpayer may claim any excess quality jobs tax credit against its
withholding tax liability. The withholding tax benefit may only be applied against the withholding
tax account used by the taxpayer for payroll purposes. In the event the entity that earned the credit
is a single member limited liability company that is disregarded for income tax purposes, the
withholding tax benefit may only be applied against the withholding tax liability that is attributable to wages paid by the single member limited liability company. A taxpayer must notify
the commissioner each year of their irrevocable election to take all or a part of the credit against
the quarterly or monthly withholding tax payments for such taxpayer. When this election is made,
the excess quality jobs tax credit will not pass through to the shareholders, partners, or members
of the taxpayer if the taxpayer is a pass-through entity.

1. Notice of Intent. To claim any excess tax credit not used on the income tax return against the
   taxpayer’s withholding tax liability, the taxpayer must file Revenue Form IT-WH at least thirty
   (30) days prior to the due date of the Georgia income tax return (including extensions) or at least
   thirty (30) days prior to the filing of the income tax return, whichever occurs first. Failure to file
   this form as indicated will result in disallowance of the withholding tax benefit. However, in the
   case of a credit which is earned in more than one taxable year, the election to claim the
   withholding credit will be available for the credit earned in such subsequent year.
2. Review Period. The Department of Revenue has one hundred twenty (120) days from the date
   the income tax return claiming the tax credit is received to review the credit and make a
   determination of the amount eligible to be used against withholding tax.
3. Letter of Eligibility. Once the review is completed, a letter will be sent to the taxpayer stating
   the tax credit amount which may be applied against withholding and when the taxpayer may
   begin to claim the tax credit against withholding tax. The Department of Revenue shall treat this
   amount as a credit against future withholding tax payments and will not refund any previous
   withholding payments.”
   Georgia Code § 48-7-40.26(f)(1) provides that:
   “(f) (1) Where the amount of such credit or credits exceeds the production company's or qualified
   interactive entertainment production company's liability for such taxes in a taxable year, the
   excess may be taken as a credit against such production company's or qualified interactive
   entertainment production company's quarterly or monthly payment under Code Section 48-7-103.
   Each employee whose employer receives credit against such production company's or qualified
   interactive entertainment production company's quarterly or monthly payment under Code
   Section 48-7-103 shall receive credit against his or her income tax liability under Code Section
   48-7-20 for the corresponding taxable year for the full amount which would be credited against
   such liability prior to the application of the credit provided for in this subsection. Credits against
   quarterly or monthly payments under Code Section 48-7-103 and credits against liability under
   Code Section 48-7-20 established by this subsection shall not constitute income to the production
   company or qualified interactive entertainment production company.”
   Georgia Code § 48-7-40.26(h)(3) provides that:
   “(3) In no event shall the amount of the tax credit under this Code section for a taxable year
   exceed the production company's or qualified interactive entertainment production company's
   income tax liability. Any unused credit amount shall be allowed to be carried forward for five
   years from the close of the taxable year in which the investment occurred. No such credit shall be
   allowed the production company or qualified interactive entertainment production company
   against prior years' tax liability.”
   Revenue Regulation 560-7-8-.45(10)(b) provides that:

LR IT-2014-05
Withholding Tax Benefit for Credits
December 19, 2014

“(b) Withholding Tax. The production company or qualified interactive entertainment production
company may claim any excess film tax credit against its withholding tax liability or the
withholding tax liability of its payroll service providers provided such withholding tax liability is
with respect to the employees of the production company and is attributable to withholding for
such employees for withholding periods approved in subparagraph (10)(b)3. The withholding tax
benefit may only be applied against the withholding tax account used by the production company
or its payroll service provider or qualified interactive entertainment production company or its
payroll service provider for payroll purposes. In the event the production company or qualified
interactive entertainment production company is a single member limited liability company that is
disregarded for income tax purposes, the withholding tax benefit may only be applied against the
withholding tax liability that is attributable to wages paid by the single member limited liability
company or against the withholding tax liability of its payroll service providers provided such
withholding tax liability is attributable to wages paid by its payroll service provider with respect
to the individuals providing services to the single member limited liability company and is
attributable to withholding for such employees for withholding periods approved in subparagraph
(10)(b)3. Any production company or qualified interactive entertainment production company
that qualifies to take all or a part of the film tax credit against withholding tax otherwise due the
Department of Revenue, must make an irrevocable election to do so as a part of its notification to
the Commissioner required under this subparagraph. When this election is made, the excess film
tax credit will not pass through to the shareholders, partners, or members of the production
company or qualified interactive entertainment production company if the production company or
qualified interactive entertainment production company is a pass-through entity.

1. Notice of Intent. To claim any excess film tax credit not used on the income tax return against
   the production company’s or qualified interactive entertainment production company’s
   withholding tax liability, the production company or qualified interactive entertainment
   production company must file Revenue Form IT-WH Notice of Intent at least thirty (30) days
   prior to the due date of the Georgia income tax return (including extensions) or at least thirty (30)
   days prior to the filing of the income tax return, whichever occurs first. Failure to file this form as
   indicated will result in disallowance of the withholding tax benefit. However, in the case of a
   credit which is earned in more than one taxable year, the election to claim the withholding credit
   will be available for the credit earned in such subsequent year.
2. Review Period. The Department of Revenue has one hundred twenty (120) days from the date
   the income tax return claiming the film tax credit is received to review the credit and make a
   determination of the amount eligible to be used against withholding tax.
3. Letter of Eligibility. Once the review is completed, a letter will be sent to the production
   company or qualified interactive entertainment production company stating the film tax credit
   amount which may be applied against withholding and when the production company or its
   payroll service provider or qualified interactive entertainment production company or its payroll
   service provider may begin to claim the film tax credit against withholding tax. The Department
   of Revenue shall treat this amount as a credit against future withholding tax payments and will not
   refund any previous withholding payments made by the production company or its payroll service
   provider or the qualified interactive entertainment production company or its payroll service
   provider.”
   Ruling
   Ruling on Issue #1
   The carry forward period for using an income tax credit against income tax liability is the carry forward period
   provided in the respective income tax credit statute. The carry forward period for using a credit against withholding
   tax liability begins with the first withholding period after the withholding period in the withholding approval letter
   issued to the taxpayer by the Department and ends in the statutorily specified number of years later. For example,

LR IT-2014-05
Withholding Tax Benefit for Credits
December 19, 2014
the income tax carry forward period for the quality jobs tax credit is ten years from the close of the taxable year in
which the new quality jobs were created. If a taxpayer properly elects to use their excess credit against withholding,
as provided in the quality jobs tax credit regulation, and the taxpayer receives a withholding approval letter from the
Department, the carry forward period for using the amount approved against withholding begins with the first
withholding period after the period in the withholding approval letter issued to the taxpayer by the Department and
ends ten years later. Therefore, assume a taxpayer created 70 new quality jobs in 2010, timely filed Form IT-WH to
elect to use their excess credit against withholding, claimed the quality jobs tax credit for those 70 new quality jobs
on the taxpayer’s 2010 income tax return, and the taxpayer received a withholding approval letter from the
Department, which states they can begin to use the amount approved against withholding in January of 2012 (the
first quarter of 2012). In this case, the carry forward period would begin on April 1, 2012 (the second quarter of
2012, which is the first withholding period after the period in the withholding approval letter issued to the taxpayer
by the Department) and would expire 10 years later. Therefore the carry forward period would expire on March 31,
2022 (the end of the first quarter of 2022).
Ruling on Issue #2
Unless an income tax credit statute specifies a specific order in which an income tax credit must be used, the
taxpayer decides the order in which they use their income tax credits and income tax credit carry forward. The film
tax credit and the quality jobs tax credit statutes and regulations do not specify an order in which they must be used.
The research tax credit statute and regulation provide that a business enterprise whose credit amount exceeds 50
percent of the business enterprise’s remaining Georgia net income tax liability after all other credits have been
applied may elect to take the excess credit as a credit against such business enterprise’s quarterly or monthly
withholding payments under Code Section 48-7-103. The credit order and limitation have been applied before the
excess credit amount is allowed against withholding. Therefore, after the taxpayer has received a withholding
approval letter from the Department, there is no order in which the taxpayer must use their film tax credit, quality
jobs tax credit, and research tax credit against withholding tax liability. Please note, the taxpayer should specify
which credit is being used on any given withholding return.

The opinions expressed in this ruling are based upon the information contained in your request and are limited to the
specific transactions and taxpayer in question. A ruling has no precedential value except to the person to whom the
ruling was issued and then only for the specific transaction addressed in the ruling. Should the circumstances
regarding this transaction change, or differ materially from those represented, then this ruling may become
invalid. In addition, please be advised that subsequent statutory or administrative rule changes or judicial
interpretations of the statutes and rules upon which this advice is based may subject similar future transactions to a
different tax treatment than those expressed in this response.