Update: On May 6, 2024, Governor Brian Kemp signed into law HB 1181 (Act 598), which reduces the carryforward period for various tax credits and provides sunset dates for select tax credits and sales/use tax exemptions. On May 7, 2024, Governor Kemp vetoed HB 1192, which would have temporarily suspended the issuance of new sales and use tax exemption certificates for high-technology data centers.

Governor Brian Kemp signed a package of bills¹ on April 18, 2024, that reduce tax rates for businesses and individuals. Notably, HB 1023 reduces the corporate income tax rate and extends the time in which a corporation can file a return, and HB 1015 accelerates the individual income tax rate reduction. Subsequently, on April 22, the governor signed HB 1162, which updates that state's conformity to the Internal Revenue Code (IRC).

Other tax related bills awaiting the governor's action would limit the use of tax credits and temporarily suspend the issuance of new sales and use tax exemption certificates for high-technology data centers. The governor has until May 7, 2024, to sign or veto the bills or else the measure will automatically become law.

Enacted legislation — rate changes, IRC conformity, filing extensions

Income tax rate reductions

Applicable ² to tax years beginning on or after January 1, 2024:

• HB 1023 changes the 5.75% corporate income tax rate — which applies to domestic and foreign corporations as well as pass-through entities (PTEs) electing to be subject to the entity level PTE tax — to the same rate imposed on individuals for the corresponding tax year
• HB 1015 reduces the individual income tax rate from 5.49% to 5.39%

HB 1015 retains the previously enacted rate reductions under HB 1437 (Ga. Laws 2022). If revenue targets are met, additional annual reductions of 0.10% will apply starting January 1, 2025, until the tax rate reaches 4.99%. The reductions will be delayed by one year for each year that revenue requirements are not met.

IRC conformity update

HB 1162 updates the state's date of conformity to the IRC to January 1, 2024 (from January 1, 2023), applicable to tax years beginning on or after January 1, 2023.

Corporate income tax filing extension

For tax years beginning on or after January 1, 2025, HB 1023 grants corporate taxpayers an additional 30 days after the federal extension deadline to file their state corporate income tax return.

Pending legislation — limits on tax credits and exemptions

Limit on the use of tax credits

HB 1181, as approved by the General Assembly, would limit and reduce the carry-forward period for certain income tax credits, establish a sunset date for certain credits, and modify various sales and use tax exemptions.

Specifically, HB 1181 would establish new three-year credit carryforward limits for tax credits for (1) clean energy property, (2) business enterprises for leased motor vehicles, daily ridership and implementation, and (3) Class III railroads and reporting. It also would reduce from 15 years to 10 years the carryforward period for unused credits for investments in expanding existing manufacturing facilities and enhancements for high-impact aerospace defense projects.

The 10-year credit carryforward period would decrease to five years for income tax credits for:

• Qualified research expenses
• Qualified investments in a research fund
• Jobs created by manufacturers of medical equipment, medical supplies, pharmaceuticals or medicine
• Existing manufacturing and telecommunications facilities in tiers 1, 2, 3 or 4 counties (a five-year carryforward also would apply to the optional tax credit for such facilities)
• Employers providing approved retraining programs
• Qualified donations of real property

The five-year carryforward period (reduced from 10-years) also would apply to jobs tax credits for (1) certain business enterprises in counties designated as less developed, (2) increases in port traffic (specifically the alternative tax credit for base year port traffic increases and the increased job tax credit for increases in port traffic), and (3) revitalization zones (which would be prorated in three equal installments over three years, from five installments over five years).

HB 1181 would reduce from five years to three years the credit carryforward period for income tax credits for:

• Film, gaming, video or digital production and postproduction expenditures
• Alternative fuel, low-emission and zero-emission vehicles and electric vehicle chargers
• Businesses engaged in manufacturing cigarettes for export
• Depository financial institutions that elected subchapter "S" status
• Certain qualified equipment that reduces business or domestic energy or water usage
• Certain qualified investments for limited periods

These revised limits would apply to unused tax credits generated during tax years beginning on or after January 1, 2025.

Provisions of HB 1181 also would sunset certain tax credits on December 31, 2029, including those for (1) qualified investments in a research fund; (2) alternative fuel, low-emission and zero-emission vehicles and electric vehicle chargers; and (3) business enterprises for leased motor vehicles, daily ridership and implementation.

Lastly, HB 1181 would sunset various sales and use tax exemptions as of December 31, 2029, including the exemption for (1) machinery and equipment used to remanufacture aircraft engines, engine parts or components at an in-state remanufacturing facility; (2) machinery and equipment and any repair, replacement or component parts for such machinery and equipment used primarily for reducing or eliminating air or water pollution; (3) machinery and equipment incorporated into a telecommunications manufacturing facility that is primarily used to improve air quality in advanced technology clean rooms; and (4) mobility-enhancing equipment prescribed by physicians, among other exemptions.

Sales and use tax exemptions for data centers

Beginning on July 1, 2024 and ending on June 30, 2026, HB 1192 would suspend the issuance of any new sales and use tax exemption certificates for high-technology data centers, unless otherwise provided by the Special Commission on Data Center Energy Planning (which would be created by HB 1192).

This suspension would not apply to a high-technology data center customer that entered into an ongoing contract before July 1, 2024, with a high-technology data center that applied for an exemption certificate before July 1, 2024. HB 1192 would also add a definition of "new quality job" instead of referencing the definition in Ga. Code Section 48-7-40.17, "Tax Credits for Establishing or Relocating Quality Jobs." The definitions of "new quality job" under the two programs would be substantially similar, except the average pay requirement would increase for the data center exemption. While the average pay under the establishing or relocating quality jobs credit is at least 110% of the average wage for the county where located, it would increase for the data center exemption to 150% of the average wage for the county where located.

Implications

Companies and individuals will need to take into consideration the retroactive rate reductions, especially in terms of estimated tax payments and income tax withholding. They should also watch for additional rate reductions, which will occur in each year that the revenue triggers are met until the income tax rate decreases to 4.99%. For financial statement purposes, the effects of HB 1023 and HB 1015 should be accounted for in a company's interim period, which includes April 18, 2024, the date they were signed into law.

The governor has until May 7, 2024, to act on HB 1181 and HB 1192. If the governor takes no action by May 7, the bills will automatically become law.

If HB 1181 becomes law, high-technology data center customers and high-technology data centers would need to take action before July 1, 2024, to be exempt from the temporary sales and use tax exemption suspension.