When one company acquires another's assets and workforce, can the buyer claim the seller's Georgia quality jobs tax credit and its carryforward?

Plain-English summary

A company ("Taxpayer 1") built a new Georgia plant, created jobs, and claimed Georgia's quality jobs tax credit (QJTC), building up a carryforward usable against withholding tax. Taxpayer 1 was then acquired by Taxpayer 2 in an asset acquisition of substantially all of its assets, and Taxpayer 2 also took on Taxpayer 1's entire workforce. Both entities would file short-year returns around the acquisition date. Taxpayer 2 asked whether it could claim Taxpayer 1's quality jobs tax credit and use Taxpayer 1's carryforward.

The Department ruled no. The quality jobs tax credit statute, O.C.G.A. § 48-7-40.17, does not contain the sale, merger, acquisition, or bankruptcy provision that some other Georgia income-tax credit statutes have -- the provision that lets an unused credit be transferred to and continued by a transferee. Because that transfer language is absent, when there is a sale, merger, acquisition, or bankruptcy of the taxpayer, the quality jobs tax credit cannot be transferred and is simply lost -- it cannot be used by the buyer or by any other taxpayer.

What this means for you

Buyers acquiring a business with earned quality jobs credits

Do not assume a target's unused quality jobs tax credit comes with the assets. As this ruling read the statute, an asset acquisition (or merger, sale, or bankruptcy) destroyed the QJTC -- the buyer got the workforce but not the credit. Value the credit at zero in that kind of deal unless a transfer path clearly applies.

Accountants and tax professionals

The result rests on a statutory gap: § 48-7-40.17 lacked the transfer-on-sale/merger/acquisition/bankruptcy language present in credits like the job and investment tax credits (compare LR IT-2014-02 and LR IT-2010-01/2013-01, where successors could continue those credits). Georgia later closed this gap: LR IT-2020-01 applies O.C.G.A. § 48-7-42(g), a general transfer rule for all chapter credits effective for tax years beginning on or after January 1, 2018, to let a successor continue a QJTC. This 2015 ruling predates that change, and a mere change of form (an LLC conversion) was separately allowed to keep the credit in LR IT-2014-03. Match the analysis to the exact transaction type and tax year.

Common questions

Q: We bought the assets and kept all the employees -- why can't we claim the seller's quality jobs credit?
A: Because, as the Department read O.C.G.A. § 48-7-40.17, the statute had no provision allowing the credit to transfer on a sale, merger, acquisition, or bankruptcy -- so the credit was lost rather than passed to the buyer.

Q: Is the credit just paused, or actually gone?
A: The Department said it "is lost and cannot be utilized by any taxpayer" in that kind of transaction.

Q: Would the answer be different today?
A: Possibly. A later general transfer rule (O.C.G.A. § 48-7-42(g)) applies to tax years beginning on or after January 1, 2018, and was applied to a successor's quality jobs credit in LR IT-2020-01. This ruling addressed an earlier transaction under the statute as it then stood.

Q: Can another taxpayer rely on this ruling?
A: No. A Georgia letter ruling binds the Department only for the requesting taxpayer and the specific facts, with no precedential value for others.

Citations and references

Statutes:

• O.C.G.A. § 48-7-40.17(b) -- quality jobs tax credit; wage-based credit tiers; four succeeding years; seven-year creation period; 50-job requirement
• O.C.G.A. § 48-7-101 -- withholding of wages
• O.C.G.A. § 48-7-103 -- credit against quarterly/monthly withholding payments
• O.C.G.A. § 48-7-20 -- individual income tax liability

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2015-03

Original ruling text

Georgia Letter Ruling:
Topic:
Date Issued:

LR IT-2015-03
Quality Jobs Tax Credit
December 14, 2015

This letter is in response to your letter requesting a ruling that Taxpayer 2 can claim Taxpayer
1’s quality jobs tax credit and Taxpayer 1’s quality jobs tax credit carry forward.
Facts as Presented by the Taxpayer
Your letter to the Department states:
“Taxpayer 1 commenced operations at a new plant in , Georgia in
. As a result of the job creation at the plant, Taxpayer 1 has claimed the Georgia Quality
Jobs Tax Credit. Taxpayer 1 has in credit carry forward that is eligible to be used
against withholding tax.
“On , Taxpayer 1 was acquired by Taxpayer 2 in an asset acquisition of substantially all
of its assets. Taxpayer 2 also acquired the entire workforce of Taxpayer 1.

“For the tax year, Taxpayer 1 will file a short-year tax return beginning on , and
ending on , which is the date on which it [sic] was acquired. Taxpayer 2 will file a shortyear tax return for tax year ending .”
Issue
Whether Taxpayer 2 can claim Taxpayer 1’s quality jobs tax credit on Taxpayer 2’s tax
year ending Georgia income tax return and whether Taxpayer 2 can utilize Taxpayer 1’s
quality jobs tax credit carry forward?
Authorities
O.C.G.A. § 48-7-40.17 (b) provides that:
“(b) A taxpayer establishing new quality jobs in this state or relocating quality
jobs into this state which elects not to receive the tax credits provided for by
Code Sections 48-7-40, 48-7-40.1, 48-7-40.2, 48-7-40.3, 48-7-40.4, 48-7-40.7,
48-7-40.8, and 48-7-40.9 for such jobs and investments created by, arising from,
related to, or connected in any way with the same project and, within one year of
the first date on which the taxpayer pursuant to the provisions of Code Section
48-7-101 withholds wages for employees in this state and employs at least 50
persons in new quality jobs in this state, shall be allowed a credit for taxes
imposed under this article:

LR IT-2015-03Quality Jobs Tax Credit
Page 2 of 3
(1) Equal to $2,500.00 annually per eligible new quality job where the job pays
110 percent or more but less than 120 percent of the average wage of the county
in which the new quality job is located;
(2) Equal to $3,000.00 annually per eligible new quality job where the job pays
120 percent or more but less than 150 percent of the average wage of the county
in which the new quality job is located;
(3) Equal to $4,000.00 annually per eligible new quality job where the job pays
150 percent or more but less than 175 percent of the average wage of the county
in which the new quality job is located;
(4) Equal to $4,500.00 annually per eligible new quality job where the job pays
175 percent or more but less than 200 percent of the average wage of the county
in which the new quality job is located; and
(5) Equal to $5,000.00 annually per eligible new quality job where the job pays
200 percent or more of the average wage of the county in which the new quality
job is located; provided, however, that where 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. For each new quality job created, the credit
established by this subsection may be taken for the first taxable year in which the
new quality job is created and for the four immediately succeeding taxable years;
provided, however, that such new quality jobs must be created within seven years
from the close of the taxable year in which the taxpayer first becomes eligible for
such credit. Credit shall not be allowed during a year if the net employment
increase falls below the 50 new quality jobs required. Any credit received for
years prior to the year in which the net employment increase falls below the 50
new quality jobs required shall not be affected except as provided in subsection
(f) of this Code section. The state revenue commissioner shall adjust the credit
allowed each year for net new employment fluctuations above the 50 new quality
jobs required.”

LR IT-2015-03Quality Jobs Tax Credit
Page 3 of 3
Ruling
Based on the facts stated herein, it is the opinion of this Department that Taxpayer 2 cannot
claim Taxpayer 1’s quality jobs tax credit and cannot utilize Taxpayer 1’s quality jobs tax credit
carry forward. Unlike certain other Georgia income tax credit statutes, the quality jobs tax credit
statute, O.C.G.A. § 48-7-40.17, does not contain the sale, merger, acquisition, or bankruptcy
provision which allows unused income tax credit to be transferred and continued by the
transferee. Therefore, when there is a sale, merger, acquisition, or bankruptcy of the taxpayer,
the quality jobs tax credit cannot be transferred and used by the transferee. When there is a sale,
merger, acquisition, or bankruptcy of the taxpayer, the quality jobs tax credit is lost and cannot
be utilized by any taxpayer.

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.