Governor Kemp ended Georgia Small Business Week by signing HB 1058, which permits affiliated corporations in Georgia to elect filing a consolidated income tax return for tax years beginning on or after January 1, 2023.
Is a Consolidated Tax Return Required?
Previously, taxpayers could only file consolidated returns if they received prior approval or had been requested by Georgia. And if approved, the Georgia Department of Revenue (“Department”) had broad discretion in requiring adjustments deemed necessary to properly reflect the taxpayer’s Georgia income. The Department’s broad discretion presented notable uncertainty and taxpayers would often avoid requesting consolidated filing.
HB 1058 provides much needed clarity as well as a potentially significant tax planning opportunity for taxpayers to offset their Georgia taxable income from affiliated loss companies. Entities eligible to make the election (referred to as a “Georgia affiliated group”) must, among other things, be C corporations that are members of a federal affiliated group and must be subject to Georgia income tax. Entities already filing a Georgia consolidated return are permitted to continue filing a Georgia consolidated return or terminate its previous election for subsequent tax years.
The election is irrevocable and binding for both the Department and the electing affiliated group for 5 years. The new law also states that the Department can no longer compel a taxpayer to make consolidated filing unless the Georgia affiliated group has made the election. That said, the Department is still permitted to require combined unitary reporting.
Questions remain with how HB 1058 may be applied with respect to net operating loss carryforwards or tax credit carryforwards. However, we anticipate the Department will issue regulations and additional guidance in the coming months.