#1DEPARTMENT of REVENUE TAX CREDITS AND EXEMPTIONS 101 2023 Joint Tax Credit Review Panel June 14, 2023#2Introductions Tax Credit Review Tax Exemption Review Questions DEPARTMENT of REVENUE OUR AGENDA 2#3JOINING US 4 Austin Gibbons, Director of External Affairs and Communications Frank O'Connell, State Revenue 1 Commissioner 2 Chester Cook, Deputy State Revenue Commissioner 5 3 Kelsey Finn, Director of Income Tax Policy 6 DEPARTMENT of REVENUE Charles Elrod, Senior Managing Attorney for Tax Operations Joe Snowden, Legislative and Legal Affairs Specialist 3#4DEPARTMENT of REVENUE INCOME TAX CREDITS Kelsey Finn, Director of Income Tax Policy Office of Tax Policy 4#550+ CREDITS ADMINISTERED 102. Employer's Credit for Approved Employee Retraining 103. Employer's Job Tax Credit 104. Employer's Credit for Purchasing Child Care Property 105. Employer's Credit for Providing or Sponsoring Child Care for Employees 106. Manufacturer's Investment Tax Credit 107. Optional Investment Tax Credit 108. Qualified Transportation Credit 109. Low Income Housing Credit 111. Business Enterprise Vehicle Credit 112. Research Tax Credit 113. Headquarters Tax Credit 120. New Manufacturing Facilities Property Credit 121. Historic Rehabilitation Credit for Historic Homes 122. Film Tax Credit 124. Land Conservation Credit 125. Qualified Education Expense Credit 126. Seed-Capital Fund Credit 128. Wood Residuals Credit 129. Qualified Health Insurance Expense Credit 130. Quality Jobs Tax Credit 131. Alternate Port Activity Tax Credit 132. Qualified Investor Tax Credit 133. Film Tax Credit for a Qualified Interactive 114. Port Activity Tax Credit for Port Activity Job Tax Credit Entertainment Production Company 115. Bank Tax Credit 116. Low Emission Vehicle Credit 117. Zero Emission Vehicle Credit 118. New Facilities Jobs Credit 119. Electric Vehicle Charger Credit 135. Historic Rehabilitation Tax Credit for Other Certified Structures 136. Qualified Rural Hospital Organization Expense Tax Credit 137. Qualified Parolee Jobs Tax Credit 138. Postproduction Film Tax Credit 139. Small Postproduction Film Tax Credit 140. Qualified Education Donation Tax Credit 141. Musical Tax Credit 142. Rural Zone Tax Credits 143. Agribusiness and Rural Jobs Tax Credit 144. Post-Consumer Waste Materials Tax Credit 145. Timber Tax Credit 146. Railroad Track Maintenance Tax Credit 147. PPE Manufacturer Job Tax Credit 148. Life Sciences Manufacturing Job Tax Credit 150. Qualified Law Enforcement Donation Credit 151. Qualified Foster Care Support Organization Credit 152. Historic Rehabilitation Credit for Historic Homes (2023 and 2024) 153. Historic Rehabilitation Credit for Other Certified Structures 2023 through 2027 201. Disabled Person Home Purchase or Retrofit Credit 202. Child and Dependent Care Expense Credit 203. Georgia National Guard/Air National Guard Credit 204. Qualified Caregiving Expense Credit 206. Disaster Assistance Credit 207. Rural Physicians Credit 208. 2008-2021 Adoption Tax Credit 209. Eligible Single-Family Residence Tax Credit 210. Other States Tax Credit 211. Low Income Tax Credit 212. Community Based Faculty Preceptor Tax Credit 213. Post-2021 Adoption Tax Credit Never used DEPARTMENT of REVENUE Sunsetted, still being carried forward Sunsetted or repealed, not being carried forward 5#6COMMON PROCESSES ■ Pre-Approval 133. Film Tax Credit for a Qualified Interactive Entertainment Production Company 135. Historic Structure Rehabilitation Tax Credit 136. Qualified Rural Hospital Organization Expense Tax Credit Transfer/Sell 122. Film Tax Credit 124. Land Conservation Credit 133. Film Tax Credit for a Qualified Interactive Entertainment Production Company 135. Historic Structure Rehabilitation Tax Credit Apply Against Withholding 103. Employer's Job Tax Credit 112. Research Tax Credit 130. Quality Jobs Tax Credit 135. Historic Structure Rehabilitation Tax Credit DEPARTMENT of REVENUE The list above is NOT exhaustive. It is meant to show that a wide array of credits comes with a wide array of requirements for processing. 9 6.#7CAPPED CREDITS Individual/Entity Level Cap: annually capped for each taxpayer through a dollar value or based upon income tax liability Aggregate Cap: limits the credit to a specific appropriated amount for that tax year, split between all qualified taxpayers; generally first-come, first-serve Donation Credit Cap: Donation credits are often capped at the individual/entity level (donor) and the organization level (donee/receiving entity) Preapproval: Capped credits generally require preapproval, as it is not possible to implement a credit cap via tax returns DEPARTMENT of REVENUE 7#8PREAPPROVAL PROCESS ■ Preapproval: Capped credits generally require preapproval, as it is not possible to implement a credit cap via tax returns Preapproval Process: Generally requires taxpayer to submit an application with an estimate of what they believe they will qualify for When the credit is generated, the credit amount is adjusted down to the value actually earned For aggregate caps: credit is prorated on the date that the cap is met. Following that day, additional applicants are denied preapproval, even if they meet certification requirements. Many aggregate caps are met in one day. Note: With capped preapproval credits, it is not possible to add money back to the annual pot after adjustments are made to an entity's credit. All amounts over the adjusted amount are considered lost and go unused. DEPARTMENT of REVENUE 8#9UNCAPPED CREDITS Uncapped credits do not have a set annual limit, but they are still limited by certification requirements. Limitations based upon certification requirements include: Amount of investment in the state # of jobs created # of jobs maintained Type of jobs created Use of Georgia companies/vendors Amount of expenses incurred in the state Use of Georgia ports and transit Expanding industries in the state Expanding jobs, industry, or infrastructure to rural areas Economic stimulus in the state Bringing new career options to Georgia Use or creation of specific technology Offering jobs at salaries above median salary for an area DEPARTMENT of REVENUE 9#10POSSIBLE STEPS IN THE TAX CREDIT PROCESS Pre-certifying: applicant is required to meet criteria prior to moving forward with generating the credit. Preapproving: usually for capped credits, submit request through the Georgia Tax Center, first come, first serve until the cap is met. Generating: when the tax credit certificate is created Allocating: originator assigns credit amounts to related entities or shareholders on the return. Utilizing: applying a credit against tax liability on an income tax return. Auditing: pre-certified amounts are adjusted based on audit findings For the film tax credit, every credit is subject to a mandatory audit prior to credit generation. The estimated amount that is pre-certified by GDECD is adjusted by third-party auditors or GDOR auditors to reflect actual expenditures in GA. This change was made by the legislature in 2020. Note: These steps do not apply to every tax credit and, even when all are applicable, the above steps may occur in a different order based upon the credit's statutory construction. DEPARTMENT of REVENUE 10#11PROCESSING TAX CREDITS Credit is 'Allocated' or 'Assigned' Shared with partners and shareholders of an entity Occurs systematically as tax returns are processed Must include identifier for the entity receiving the credit Credit is 'Transferred' Credit is sold or given to another entity/individual Requires Form IT-TRANS submitted via GTC Must include identifiers for the entity transferring the credit DEPARTMENT of REVENUE 11#12COMMON CHALLENGES TO ADMINISTRATION Pass-through entities do not always send multilevel allocations in the right order Credits cannot be claimed by lower levels until the top level generates the credit Statute requiring that credit generation and credit claiming occur in different tax years Credits that become uncapped during the tax year Preapproval credits that are based on an estimated amount, generated prior to adjustments or allowed to be transferred, and then must be clawed back to the adjusted amount; claw-back should be associated with seller - not purchaser of credit Preapproval estimates - Entities estimate tax liability for preapproval at an amount above what they will qualify for/at per entity cap, because preapproved credit amounts can only be adjusted down. Large portions of annual statutory cap go unused due to "loss" Staff retention DEPARTMENT of REVENUE 1122 12#13DEPARTMENT of REVENUE SALES TAX EXEMPTIONS Charles Elrod, Senior Managing Attorney for Tax Operations 13#14DEPARTMENT of REVENUE EXEMPTIONS ADMINISTERED 100+ 14#15TYPES OF EXEMPTIONS Product-Based Exemption Hearing aids Prescription drugs Oxygen Lottery tickets Girl Scout cookies Pre-written computer software Organization-Based Exemptions Volunteer health centers Non-profit hospitals Aquariums and zoos University System of Georgia construction projects Private colleges and universities DEPARTMENT of REVENUE 15#16EXEMPTION PROCESS EXAMPLES Refund Process for Capped Exemptions Tax is paid up front and reimbursed upon application and proof of documentation Ex: Zoos, aquariums, and car museums Reporting Requirements When annual reports are required of DOR, DOR requires sellers to report data to us on an annual basis and, often, make annual application for their exemption Ex: Community health centers, food banks, data centers Self Help Taxpayer visits the DOR website to obtain an exemption certificate Ex: Government entities, public colleges, sale for resale, etc. Application Based Taxpayer visits the DOR website, the Georgia Tax Center, or works with a CPA to apply for their sales tax exemption Ex: Private colleges, food banks, high-technology exemption DEPARTMENT of REVENUE 16#17DOCUMENTATION REQUIREMENTS ST-5/ST-5M Letter of Authorization ST-7 Terms of Reorganization Itemized customer invoice Transaction documentation Grant documentation Bill of Lading ST-W8 ST-WD2 Exemption Certificate ST-AER2 ST-M8 Evidence of 100% common ownership Prescription documentation Product documentation Food and beverage sales documentation ST-CE2 Refund application only Aircraft registration documentation Major sporting event determination letter Certificate of permanent location with the clerk of the Superior Court DEPARTMENT of REVENUE 17#18DEPARTMENT of REVENUE QUESTIONS? 18