Contributors: Chris Grimes, Senior Manager, State & Local Tax | Peter Baisch, Senior Manager, State & Local Tax
Georgia IRC Conformity and Section 174
On May 2, 2023, Georgia Senate Bill 56 was signed into law, which updated Georgia’s Internal Revenue Code (IRC) conformity date from January 1, 2022, to January 1, 2023. For many businesses, the most significant provision of the legislation was regarding IRC conformity of research and experimental (R&E) expenditures under Section 174.
Under the Tax Cuts and Jobs Act (TCJA), for tax years beginning on or after January 1, 2022, R&E expenditures are no longer allowed to be treated as a deduction for Federal tax purposes. Instead, these R&E expenditures are required to be amortized over a five-year or 15-year period, depending on whether these expenditures were domestic or foreign. Georgia’s SB 56 decouples from the Federal R&E expenditure amortization provision and allows for the deduction of these expenses.
Georgia, along with other states including California, Indiana, Kentucky (2022 only), Tennessee and Wisconsin, does not conform to Section 174 expenditures amortization requirement, either due to recent legislation or their IRC conformity dates. It is expected that additional states will address this specific issue over the coming months with existing proposals already in the works. Businesses need to consult with their tax preparers on potential state legislative updates and consider whether extending or amended returns will be warranted based on their multistate footprint.
Sales and Use Tax on Digital Products
Effective January 01, 2024, sales and use tax will be imposed on the retail sale of specified digital products, other digital goods and digital codes, provided users located in Georgia receive the right to permanently access the specified digital products. Possession of the specified digital goods, other digital goods or digital codes is not required.
Resale Exemption for Digital Products
A sale for resale exemption will be provided for specified digital products, other digital goods and digital codes subsequently sold, licensed, leased, broadcast, transmitted or distributed, in whole or in part, as an integral, inseparable component part of a service or another such product, good or code sold by the purchaser to an ultimate consumer. Form ST-5 (Sales Tax Certificate of Exemption) or other acceptable documentation will need to be collected from the purchaser to substantiate the exempt sale.
Specified digital products, other digital goods and digital codes include sales such as, video, music, books, magazines, photographs, artwork, prerecorded training, etc.
How Cherry Bekaert Can Help
If you have any questions about how you can take advantage of these tax changes, reach out to your Cherry Bekaert tax advisor.
