The Georgia Department of Revenue issued a letter ruling providing guidance for the application of the state’s Quality Jobs Tax Credit and Jobs Tax Credit. The taxpayer was concerned with whether they are eligible for the Jobs Tax Credit, LDCT Jobs Tax Credit, and/or Quality Jobs Tax Credit as outlined in O.C.G.A §§48-7-40, 48-7-40.1, and 48-7-40.17.

Taxpayer is a nonprofit organization formed in Georgia. The organization is exempt from federal income taxation and is required to file Federal Form 990, Return of Organization Exempt from Income Tax. The Taxpayer is also required to file a Federal Form 990-T, Exempt Organization Business Income Tax Return.

48-7-25 states that organizations are exempt from federal income tax if they fall under 501(c), 501(d), 501(e), 664, or 401. §48-7-25(c)(1) also states, “A tax is imposed on income of an organization exempted . . . when the income is derived from trade or business which is not related to exempt purposes of organizations described in paragraph (1) of subsection (a) of this Code section. This income shall be referred to as unrelated business income and shall be the income which is defined in Section 512 of the Internal Revenue Code of 1986. The tax imposed on unrelated business income shall be at the rate provided in 48-7-21.”

Meanwhile, §48-7-40.1 defines “Business Enterprise” as “any business or the headquarters of any such business which is engaged in manufacturing, including, but not limited to, the manufacturing of alternative energy products for use in solar, wind, battery, bioenergy, biofuel, and electric vehicle enterprises, warehousing and distribution, processing, telecommunications, broadcasting, tourism, research and development industries, biomedical manufacturing, and services for the elderly and persons with disabilities. Such term shall not include retail businesses. Businesses are eligible for the tax credit provided by this Code section at an individual establishment of the business based on the classification of the individual establishment under the North American Industry Classification System. For purposes of this Code section, the term “establishment” means an economic unit at a single physical location where business is conducted or where services or industrial operations are performed. If more than one business activity is conducted at the establishment, then only those jobs engaged in the qualifying activity will be eligible for the tax credit provided by this Code section.”

Finally, §48-7-40.17 defines “Taxpayer” as “any person required by law to file a return or to pay taxes, except that any taxpayer may elect to consider the jobs within its disregarded entities, as defined in the Internal Revenue Code, for purposes of calculating the number of new quality jobs created by the taxpayer under this Code section.”

The Quality Jobs Tax Credit and the Revenue Code’s general definition statute defines “taxpayer” as “any person required by law to file a return or to pay taxes. ” O.C.G.A. §§48-1-2, 48-7-40.17(a)(3). The Department has previously interpreted this definition to exclude exempt organizations because they are only required to file an “information return” pursuant to O.C.G.A. §48-7-25(b)(2)(iv)(B) and Revenue Rule 560-7-3-.09.

The organization argues that an “information return” is a “return” within the meaning of these definitions under Revenue Rule 560-3-2-.27(2)(h), which states “’return’ shall mean any tax return, registration application, form, signature form, or information return required to be filed with the Department.”

As a tax-exempt organization incorporated under the Georgia Nonprofit Corporation Code, the organization cannot be considered a “business enterprise” within the plain meaning and ordinary use of those words. Nor does it fall within the statutory definition of “business enterprise” based on its tax-exempt activity.

Parts of the organization may meet the “business enterprise” requirement for the Jobs and LDCT Jobs Tax Credit if there are different individual establishments of the organization. Under O.C.G.A. §§48-7-40(a)(2) and 48-7-40.1 (a)(2), an entity may be eligible for these credits based on activity at an “individual establishment” rather than the entity as a whole. Accordingly, even though the organization as a whole is not a “business enterprise,” if the organization has separate and identifiable individual establishments that seek profit and generate UBI, then these may qualify as “business enterprises” on an establishment-by-establishment basis. Jobs created at these establishments could count toward these tax credits which could then be applied to tax on the organization’s UBI.

Based on the facts provided by the organization, it was not eligible for the Jobs Tax Credit, LDCT Jobs Tax Credit, or Quality Jobs Tax Credit based on its tax-exempt activity. The organization may be eligible for Quality Jobs Tax Credit based on its UBI generating activity. As discussed above, the organization would be a taxpayer with respect to UBI generating activity since it would file a return and pay taxes. However, the organization is only eligible for these credits based on UBI generating activity – it may not count jobs created through tax-exempt activity toward these tax credits.

Quality Jobs Tax Credit and Jobs Tax Credit may affect your nonprofit operating in Georgia. To register to pay tax in Georgia, you will need to visit the Georgia Tax Center Website.  Alternatively, if you would like to apply for a voluntary disclosure you can apply using the Voluntary Disclosure Application.  A qualified tax attorney can assist with the execution of the application and potential questions or concerns that may arise in the process.

Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College.