|
|
|
STARTING AND OPERATING A BUSINESS IN GEORGIA Copyright © 2009, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Georgia has a fairly typical tax and legal structure under which businesses must operate. However, it is notable for having a very favorable business climate and low tax rates. Georgia is a right-to-work state and has a relatively low level of unionization of its work force, making it a favorite choice for relocation for many companies. Like most states, Georgia imposes an income tax, a franchise tax on corporations, a sales and use tax, and various excise taxes, with property taxes imposed at the local level. The state also levied a property tax on intangible assets such as stocks, bonds, and accounts receivable until a few years ago, but that tax has now been repealed. The state has also adopted a limited liability company (LLC) law and a limited liability partnership (LLP) law, so that businesses operating in Georgia in LLC or LLP form may now obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Until recently, the state's economy was reasonably healthy, in terms of the level of unemployment and other economic measures, but has recently taken a nosedive. For example, in January, 2008, the Georgia rate of unemployment was only 5.2%, but has since soared to 8.6% in January of 2009, and is now somewhat higher than the national unemployment rate of 7.6% for that month. On the other hand, one major attraction of Georgia, besides favorable tax and labor laws, is that the state has a relatively low cost of living, compared to national averages. To view the latest federal Bureau of Labor Statistics unemployment rate data for Georgia or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Georgia can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Georgia also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. As a rule, sole proprietorships in Georgia can be established with no formalities. However, as is discussed in Section IV(b), it will usually be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. Businesses selling tangible personal property at retail or certain services are required to collect and pay sales and use taxes, and must register with the Georgia state Department of Revenue for a sales tax permit, as discussed in Section IV(d). No separate tax form filing is required, generally, for a sole proprietorship, under the Georgia income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on a schedule that is part of your state personal income tax return. See Section IV(c) for information on the Georgia income tax and filing requirements for individuals. Operating as a sole proprietor in Georgia is generally much simpler than as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, or obtain workers' compensation coverage for yourself. However, if your sole proprietorship operates under an assumed or fictitious business name (trade name), it will be required to register the name with the county or counties where you do business, as discussed in Section IV(g). (c) Partnerships. Georgia's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, in general. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions) and for a limited liability limited partnership, which is a limited partnership that also elects limited liability partnership status. Partnerships, as entities, are not subject to state income tax in Georgia. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). A partnership that does business in Georgia is required to file an annual tax information return with the state. For details on Georgia partnership tax return filing requirements, see Section IV(c). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Georgia can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will typically be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. Partnerships in Georgia customarily file a Statement of Partnership in each county where they conduct their business or own real property, although it is not a requirement that a partnership do so. (Limited partnerships may file a copy of the certificate of limited partnership, certified by the secretary of state.) The Statement of Partnership must specify:
It may also disclose what property the partnership owns in the county and various other information that the partnership wishes to publicly disclose. The Statement of Partnership must be filed with the clerk of the Superior Court for the county, who may collect a fee that is the same as the fee charged by the court for registering limited partnerships. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Georgia law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the secretary of state, together with a $100 filing fee. A foreign limited partnership, one formed under the laws of another state, must apply to the secretary of state's office for a certificate of authority before doing business in Georgia, and must pay an application fee of $225. Both Georgia and foreign limited partnerships must file an annual registration and pay the applicable $30 fee. For information on limited partnership filing requirements, see the contact information for the offices of Georgia Secretary of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Georgia. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Georgia state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. Partners in general partnership or the general partners in a limited partnership can obtain a significant degree of limited liability by simply registering the partnership with the state as an LLP. However, becoming an LLP will not affect the liability of a partner in a limited liability partnership for his or her own omissions, negligence, wrongful acts, misconduct, or malpractice. Also, partners in an LLP, like an officer of a corporation, or member of an LLC, remain liable for various state taxes for which they have or exercise authority or supervision in collecting, such as sales taxes or employee withholding taxes. (Also applicable to an employee with such authority.) To form an LLP in Georgia, a partnership must file an election to become an LLP with the clerk of the Superior Court in each county where it does business and pay to the clerk the applicable fee, which can be the same as the fee the clerk charges for filing a Statement of Partnership. A foreign (non-Georgia) LLP must register with the secretary of state for a certificate of authority and pay a registration fee of $200. Foreign LLP's must file an annual registration with the secretary of state and pay an annual filing fee of $25, according to Section 14-8-57 of the Georgia Code. (However, the Secretary actually collects a total fee of $30 for such annual registrations.) As several other states have done, Georgia has enacted legislation that allows a limited partnership to also become a limited liability partnership -- a limited liability limited partnership, or LLLP. An LLLP is a regular limited partnership that has elected LLP status, so that the general partners in the LLLP are given the same liability protection as partners in an LLP. The name of an LLLP must contain the words "limited liability limited partnership" ("limited" can be abbreviated as "ltd.") or else the name must end with the abbreviation "LLLP" or "L.L.L.P." For more information on LLP registration and reporting requirements, contact the clerk of the superior court in your county and see the contact information for the offices of the Georgia Secretary of State, listed in Section VI(a). Note that one potential drawback of LLP's, if you will do business in other states besides Georgia, is that some states, like California and New York, only recognize certain types of professional partnerships as LLP's. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. (d) Corporations. To form a corporation in Georgia, you must file articles of incorporation with the Georgia Secretary of State and pay a filing fee of $100. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Georgia, by filing an application for a certificate of authority and paying a filing fee of $225. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Georgia, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file an annual registration and pay a filing fee of $30 to the Georgia Secretary of State each year. The annual registration is due between January 1 and April 1 for the preceding calendar year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in or has income from sources in Georgia must also file corporate income tax returns with the state. Corporations that do business in Georgia are also subject to a corporate franchise tax on their net worth, including capital stock, paid-in capital, and earned surplus (retained earnings). See Section IV(c) for a discussion of Georgia corporate income tax and franchise (net worth) tax rates and tax return filing requirements. For tax forms and more information on corporate income and franchise taxes in Georgia, see the contact information for the offices of the Georgia Department of Revenue, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Georgia recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. However, if an S corporation has nonresident shareholders, its S corporation status is not recognized unless all nonresident shareholders file a consent form, agreeing to pay Georgia income tax on their share of the Georgia net income of the corporation, and the corporation may have to withhold Georgia income tax on such nonresidents' share of the S corporation's Georgia-source income or file a composite state income tax return on behalf of all such nonresident shareholders. Note that although S corporations are generally not subject to Georgia's corporate income tax, they, like other corporations, are fully subject to the Georgia franchise (net worth) tax on their capital. See Section IV(c) for more on nonresident withholding for S corporations and other pass-through entities (LLC's, partnerships) that have nonresident owners and for details of the net worth tax on corporations. (f) Limited Liability Companies. Georgia, like every other state, has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Georgia may also choose to operate in the form of an LLC. In most states, including Georgia, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal and state income tax purposes. See Section IV(c) for a discussion of the income tax treatment of LLC's under Georgia tax laws. To form an LLC under the laws of Georgia, one or more persons must file articles of organization with the Georgia Secretary of State. There is a filing fee of $100. Foreign LLC's, those formed under the laws of another state or country, must register to do business in Georgia by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $225. Georgia law now authorizes the formation of single-member LLC's, since the repeal in 1997 of the former restriction on single-member LLC's. In addition to initial filing fees, both domestic and foreign LLC's must subsequently file an annual registration and pay an annual registration fee of $30. LLC's whose articles of organization specify which members of the LLC's have (or do not have) authority to execute real estate transactions on behalf of the LLC may file a certified copy of the articles of organization in a county where it owns real property, which will be recorded by the clerk of the Superior Court in the book where statements of partnership are filed by partnerships. For more information on filing articles of organization for an LLC, see the contact information for the offices of the Division of Corporations, Georgia Secretary of State, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Georgia is one of the few states that still has a bulk sale law and you will need to comply with this law when you purchase assets of an existing business. Failure to do so will expose you to liability to creditors of the seller who do not get paid off when the sale of the business occurs. The Georgia bulk sale law generally follows the Uniform Commercial Code, with the seller required to furnish you a list of names and addresses of all creditors, and to jointly prepare, with you, a list of all property to be transferred, which you must keep on file and available to the public for six months. Each creditor must be notified in advance of the sale by certified mail, in person, or by publication in a newspaper in which sheriffs' advertisements are published in the county where the former business enterprise taken over had its principal place of business in the state. The bulk sale law exempts a transfer to a new business enterprise that is organized to take over and continue the business of the seller, if public notice of the transaction is given and the new enterprise assumes all the debts of the seller and receives nothing from the transaction except an interest in the new business that is junior to the claims of creditors. Public notice is given by meeting specific requirements as to when and where an advertisement regarding the transaction must be published. Compliance with the bulk sales law should be handled by a competent business attorney, as its requirements are quite specific and very technical in nature. This is one area where doing it yourself is akin to "do-it-yourself" brain surgery. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business occurs. In Georgia, you should require the seller to obtain a tax release from the Unemployment Insurance Division of the Georgia Department of Labor regarding state unemployment tax liabilities of the seller, and a sales and use tax release from the Georgia Department of Revenue. As buyer, you must withhold enough (up to 100%) from the sales price to cover any sales and use tax liabilities of the seller, until the seller gives you a receipt from the Department of Revenue showing that no tax, penalties or interest are owed by the seller, or showing the amount of tax owed, which you must withhold from the purchase price. The seller is required to file a final sales and use tax return within 15 days after selling the business. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. Where the buyer acquires substantially all of the assets and workforce of the selling business, the buyer will normally be treated as a successor employer and will assume the unemployment tax experience rating (and unemployment tax rate) of the acquired business, as discussed below. When a new employer (successor) acquires an existing business whose experience-based tax rate is greater than the new employer tax rate of 2.7%, the experience history of the acquired business will not be transferred to the new employer. The new employer will be assigned the new employer rate (2.7%) and will retain that rate until eligible for a rate computation based on the experience history of the new business. If the tax rate of the acquired business is lower than the new employer rate, the experience history will be transferred to the successor who will retain the rate for the rest of the calendar year. The successor's tax rate for future years will be based on the combined experience history of both the acquired business and the purchaser. Where only part of a business is acquired, the buyer and seller can agree upon a partial transfer of the seller's experience rating (subject to approval by the Department of Labor) where a clearly identifiable and separable part of the seller's business is being acquired. PLANNING POINT: EXAMPLE: (e) Withholding Tax on Real Estate Purchases. If your business purchase includes an acquisition of real estate that is located in the state of Georgia, or if you otherwise purchase Georgia real estate, you are required to withhold Georgia income tax at a rate of 3% of the purchase price or, if less, the entire amount of the net proceeds payable to the seller. No withholding is required if the seller gives you an affidavit stating that he, she, or it is a resident of Georgia or is an entity that is registered to do business in Georgia. Withholding is also not required where the property in question was the principal residence of the seller. IV. GEORGIA TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
State taxes in Georgia are generally quite low in comparison
to national averages. The state income tax on both corporations
and individuals is only 6%, and the state sales tax is only 4%,
with local sales taxes of only 2% or 3%, generally. In addition,
the intangible property tax was repealed in 1996. However,
unlike many states, Georgia allows localities to impose property
taxes on business inventories, although a proposal to exempt
inventories is currently pending (in 2009).
Georgia's income tax law contains an unusual provision
that allows a taxpayer to deduct 10% of any payments to
a certified "minority contractor," limited to a total
annual deduction of $100,000, as an incentive for businesses
to retain the services of minority-owned businesses.
For state tax forms and tax information, see the contact
information for the Georgia Department of Revenue
in Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States,
will have to have at least one government license of some
kind. In most cases, this will be a local license, issued
by your city or county. Before you open your business,
contact your local city or county hall and find out if
your particular business needs one or more local licenses.
Most kinds of local business licenses are granted upon
payment of a fee, with no further requirements, except
possibly for annual or other periodic renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning and
planning restrictions. If you own or rent any type of
facility, you will generally need fire department permits,
showing that you meet fire safety codes and, of course,
any construction or improvements to an existing structure
will almost always require a building permit. Even if you
intend to simply operate your business from your home, you
may be in violation of local zoning requirements, but this
is less likely to be a concern if you don't have clients,
customers, suppliers, or employees coming to your house on
business, on a regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Georgia has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
Since January 1, 2006, applications have been accepted for examination
exemption for the three license types: residential-basic contracting;
residential-light commercial contracting; and general contracting.
Qualifying applicants must be at least 21 years old and must provide
proof of liability and workers' compensation insurance. Also, residential
or light commercial contractors must prove they have completed three or
more projects in Georgia in the past five years, or 10 in 10 years, or
provide proof of supervisory construction experience during seven of
the past 10 years.
To be exempted from the test, General Contractors must prove they have
completed five projects in Georgia in the previous five years or 10 in the
previous 10 years. An applicant may also be exempt from the examination if
they hold a contractor's license issued by a local Georgia government that
requires passing a written exam similar to the state examination.
Licensed residential contractors who are involved in construction
of a single family residence, where the compensation of the contractor
exceeds $2,500, must offer a written warranty with regard to its work
that meets requirements set by the newly organized State Licensing
Board for Residential and General Contractors, which is the agency
that regulates contractor licensing in Georgia.
For help with other state licensing and business registration
requirements in Georgia, see the contact information for the
offices of the Professional Licensing Boards Division of
the Secretary of State, which is in charge of managing most
of the various state licensing boards. Its address is
listed in Section VI(a).
(c) Income and Franchise Taxes.
Georgia has both an individual income tax and a corporate income
tax, as well as a franchise (net worth) tax on corporations.
Each is discussed, as it applies to different types of business
legal entities, below.
Like many other states, Georgia has "de-coupled" from the
federal deduction for domestic production activities -- which
means, in plain English, that that federal deduction is not
allowed on Georgia income tax returns for individuals,
corporations, or other entities.
Georgia's tax regulations were amended, effective as of
January 1, 2006, with regard to required withholding of
state income tax on the Georgia-source income of nonresident
owners of interests in pass-through entities (partnerships,
LLC's, and S corporations). Under the Georgia Code (statutes),
withholding was required at the rate of 4% on distributions.
However, under the new regulations, the amount of withholding
is based on the nonresident's share of the Georgia-source
taxable income of the entity, rather than on the amount of
distributions (if any) that are made to the nonresident owner,
and tax must be withheld at the rate of 6%. No withholding is
required for a member to whom less than $1,000 is paid or
credited for the taxable year.
In lieu of withholding tax on behalf of nonresidents,
a pass-through entity has the choice of instead filing a
composite tax return on behalf of the nonresident partners,
members, or S corporation shareholders, on Form
IT-CR. When filing a composite return for
shareholders, it is not necessary to include copies of the
consent agreements -- agreements whereby nonresident owners
consent to be subject to Georgia state income tax. (However,
in the case of an S corporation, consent forms must be
attached to the S corporation tax return in order to
maintain the S election for Georgia tax purposes.)
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
The Georgia individual income tax is imposed at a maximum tax
rate of 6%, on taxable income of over $10,000 on a joint return
or a head of household return, or $7,000 if filing as single.
Individual taxpayers pay state income tax on their business
earnings from a sole proprietorship, or on their share of
the earnings of a pass-through entity, such as a partnership,
S corporation, or LLC. The Georgia personal income tax return
is Form 500, which must be filed with the
Department of Revenue, on or before April 15th of the
following taxable year.
Partnerships, or entities taxable as partnerships, such as
LLC's, are not subject to state income taxation in Georgia, but
must file a partnership information return with the Department
of Revenue each year, showing each partner's or member's share of
taxable income, losses, and credits, on Form 700.
The partnership information return is due by April 15th of the
following year, in the case of a partnership or LLC whose taxable
year is the calendar year.
While a partnership itself is not a taxable entity, it
may have to withhold tax with respect to nonresident partners,
unless a composite Georgia tax return is filed on their behalf,
as discussed above in this Section IV(c).
Individual taxpayers doing business as sole proprietors
(or who are partners in partnerships, members of LLC's, or
shareholders in S corporations), who have taxable income
from the business, will generally be required to make advance
payments of estimated Georgia individual income taxes,
on Form 500ES, if they have over $1,000 of
nonwage income for the year. Estimated tax payments are
due in four installments, on the 15th day of the 4th, 6th,
and 9th months of the taxable year, and the 15th day of the
first month of the following year. At least 70% of the current
year's tax liability, or 100% of the prior year's liability,
if less, must be paid in as estimated tax or withholding, to
avoid penalty, generally. Other exceptions may apply, such as
where an individual pays in an amount that is at least 90% of
the tax on his or her income for the year to date, through the
end of the month before the month the quarterly payment is due.
The Georgia corporate income tax rate, on corporations
other than S corporations, is imposed at a flat rate of 6%.
The state corporation income tax return is Form 600,
or Form 600S for an S corporation. The return
must be filed with and the tax paid to the Income Tax Division
of the Georgia Department of Revenue by the 15th day of the
third month following the end of the taxable year, or by
March 15th in the case of a corporation whose taxable year
is the calendar year.
Corporations are required to make estimated tax payments
of their state corporate income tax in advance, if their
taxable income for the year exceeds $25,000.
Estimated tax payments are due in advance, in four equal
installments, on the 15th day of the 4th, 6th, 9th, and
12th months of the taxable year. Estimated tax payments must
be at least equal 70% of the current year's tax liability to
avoid underpayment penalties, or, if the preceding year was a
full year of 12 months and a return was filed, the current year
payments need only be equal to 100% of the prior year's tax
liability, if that is less than 70% of the current year's tax.
Penalties will be imposed for failure to make the required
estimated tax payments on a timely basis.
Corporations whose quarterly payments are $10,000 or more
must make payments by electronic funds transfer (EFT).
In addition to the corporate income tax, corporations that do
business in Georgia are also subject to a corporate franchise tax.
This is a tax on a corporation's capital, which includes its
issued capital stock, paid-in capital and retained earnings.
In the case of a foreign corporation, a formula is used to
compute the amount of its capital and surplus that is deemed
to be employed in Georgia. The franchise tax ranges from a
minimum of $10 on a company with $10,000 or less of capital
to a maximum of $5,000 a year for a company with over $22
million of capital. The tax is imposed on the first day of
a corporation's taxable year, as adopted for income tax
purposes, and a tax return is due by the 15th day of the
third month of the taxable year, the same as the corporation
income tax return.
The initial franchise (net worth) tax return must be
filed by the 15th day of the third month after a corporation
is incorporated in Georgia or after a foreign (non-Georgia)
corporation has qualified to do business in the state.
Thereafter, the franchise tax is reported and paid on the
same tax return (Form 600) as the state
corporation income tax each year.
If the corporation's first taxable year is for a period
of less than 6 months, the net worth tax is reduced by
50% for that year.
Georgia's tax laws generally follow the federal tax
laws with regard to exempting the income of an S corporation
from income tax. However, S corporations with nonresident
shareholders may be required to withhold and pay over
Georgia income tax on the nonresidents' share of the S
corporation's Georgia-source income, whether or not any
income is actually distributed to them, unless a composite
Georgia income tax return is filed on behalf of the
nonresident shareholders. For more on the nonresident
withholding requirements for pass-through entities, see
the discussion above, at the beginning of this
Section IV(c).
An S corporation election for Georgia income tax purposes
is allowed only if all shareholders of the S corporation are
subject to tax on their portion of the S corporation's Georgia
taxable income, and nonresident shareholders. Each nonresident
must complete and sign a Form 600S CA consent
agreement, agreeing to pay tax on their share of the S corporation's
Georgia taxable income. The consent forms must be attached
to the S corporation tax return, Form 600S.
TAXATION OF LIMITED LIABILITY COMPANIES
In Georgia, a limited liability company (LLC) is taxed
in the same manner as a partnership, thus avoiding the
possible double taxation of income that can occur with a
corporation.
However, LLC's with nonresident members may be required to
withhold and pay over Georgia income tax on the nonresidents'
share of the LLC's Georgia-source income, whether or not
any income is actually distributed to them. For more on
the nonresident withholding requirements for pass-through
entities, see the discussion above, at the beginning of this
Section IV(c).
Georgia law allows the formation of an LLC by one
person, and, effective since July 1, 1997, also allows
an LLC to have only one member. As under federal law,
a single-member LLC that is a "disregarded entity" for
federal tax purposes will also be treated as a disregarded
entity (sole proprietorship, if owned by an individual)
for Georgia income tax purposes.
Note that it is not always entirely clear whether an LLC is
a "single-member LLC" or not, where the "single owner" is a
married couple who hold the entire ownership of the LLC in some
form of co-tenancy, such as joint tenants with right of survivorship,
tenants by the entirety, or as tenants in common. The federal Internal
Revenue Service (IRS) has taken a very lenient position in Rev.
Proc. 2002-69, where a couple hold the LLC interest as community
property, ruling that the IRS will respect whatever choice the couple
make, either to disregard the LLC as an entity (treating it as a
"single-member LLC") or to treat it as a partnership between the
husband and wife.
However, Georgia is not a community property state, so where
the LLC is owned by a husband and wife in some form of co-tenancy,
it is unclear whether the IRS treatment would be as lenient as
for community property owners, since the IRS has not issued any
published rulings on whether an LLC can be a disregarded entity
if held in one of the various forms of co-tenancy by a married
couple, rather than being held as community property. Thus, it
is also unclear, where an LLC is owned by a husband and wife as
co-tenants, whether Georgia would treat the LLC as a single-member
LLC or as a partnership.
(d) Sales and Use Tax.
Georgia imposes a general sales tax on retail sales of tangible
personal property and certain other transactions, including
rentals of tangible personal property, short-term lodgings of
less than 90 days, and amusement or entertainment activities,
at the statewide rate of 4%. In addition, local governments
are allowed to adopt several different types of local sales
taxes of up to 1% each, such as additional taxes for special
purposes, such as education or transit systems. Most areas
of the state have relatively low combined state and local
sales tax rates of 6% to 7%, but the total rate is 8% in
the city of Atlanta.
Food sold for off-premises consumption is generally
exempt from the state sales tax, but not from local sales
taxes, and thus is usually taxed at a rate of 2% or 3%.
Alcoholic beverages and food that is either sold hot,
through vending machines, or for immediate consumption,
is not exempted.
In addition to general sales taxes, local government special
districts are also allowed to impose vehicle rental taxes on
car rentals of up to 31 days, at varying rates. Car rental
operators collecting the tax are allowed to retain 3% of
the tax collected, to defray their administrative costs of
collecting and accounting for the local car rental taxes.
Sellers are required to obtain a state sales tax permit
and to collect and pay over the state and local sales and
use taxes to the Sales and Use Tax Division of the Georgia
Department of Revenue. Register for sales and use tax on
Form CRF-002, which will also serve as your
state registration as an employer, for state income tax
withholding.
There are numerous exemptions from the sales tax, such as
the exemption for "custom" (but not "canned") computer software,
if sold in a tangible medium (such as a diskette or CD-ROM).
Under a new (2006) sales tax regulation, sales of software in
an intangible form, such as by download over the Internet or
by a vendor in a "load and leave" transaction, is not considered
a sale of tangible personal property and thus is not taxable.
However, the most important sales tax exemption is the resale
exemption. If you are a wholesaler or retailer who purchases
goods that you will resell, your purchase of such goods may
qualify as an exempt sale for resale. Similarly, if you sell
goods to wholesalers or retailers for resale by them, your sale
may also qualify as an exempt sale for resale. In any such
transaction, the exemption is ordinarily available only if the
purchaser gives the seller a valid resale certificate, certifying
that the items are being purchased for resale, and not for use or
consumption by the buyer.
A shadow tax, the use tax, is also imposed at the same
rate as the sales tax. It is primarily intended to tax
property that is acquired from sources outside of the state,
in transactions not subject to sales tax, when such property
is used or consumed within Georgia. Use tax may also apply
to items purchased on an exempt basis, such as for resale,
if such items end up being used or consumed, instead of
being resold.
In April, 2006, Georgia enacted very tough new penalties for
failing to collect sales and use tax, filing false or fraudulent
sales and use tax returns, or failure to keep or furnish sales
and use tax records as required. The new law makes any of such
offenses a felony, punishable by fines of up to $5,000 and a
year of imprisonment for a first offense. Second violations can
result in fines of up to $10,000 and five years of prison time.
For more information on Georgia sales and use tax registration
and compliance, see contact information for the offices of
the Sales and Use Tax Division of the Department of Revenue
in Section VI(a).
(e) Real and Personal Property Taxes.
In Georgia, as in every other state, any business real estate
you own will be subject to real property taxes. When a business
owns real estate located in Georgia, it may have to file a real
property tax report with the county tax commissioner between
January 1 and April 1 (March 1 in some larger counties).
Georgia also imposes personal property taxes on tangible
personal property. ("Personal property" is any kind of property
that is not real estate.) While many states exempt business
inventories from property tax, inventories are not exempt
from personal property tax in Georgia. Businesses must
file an annual Business Personal Property Tax
Return, Form PT-50P, with the county each year,
reporting all items of tangible personal property that
were owned on January 1, such as furniture, equipment, and
inventory. In most counties, business personal property
tax returns are required to be filed by April 1, although
a few counties require returns to be filed by March 1.
While Georgia generally taxes tangible personal property,
it no longer imposes a property tax on intangible personal
property, such as stocks, bonds, promissory notes, and other
such paper assets. The intangibles tax was repealed in 1996.
(f) Other Business Taxes.
Georgia imposes a number of excise and other taxes on
businesses, including:
In addition to the above state taxes, the City of Atlanta
imposes an annual license fee for each calendar year on
occupations and businesses in Atlanta. The license fee
is based on taxable gross revenue in Atlanta plus the
number of employees.
(g) Trade Names.
A trade name, also known as a fictitious or assumed name, is
any name used in the course of business that does not include
the actual legal names of all the owners of the business.
Thus, if your business goes by any name other than your own
real name, it is operating under a trade name. The same is
true of a corporation, if it operates under a name other
than its legal name. A trade name might also be one that
suggests the existence of additional owners, by using such
words as "company," "associates," or "group."
In most states where you do business, it will be necessary
to register a trade, fictitious, or assumed name, so that
people who do business with you can find out who the actual
owners of your business are. You may also want to register
any such trade name, as a means of protecting against other
companies usurping that particular trade name.
Georgia requires any firm or person doing business under
a fictitious name to first register the name with the clerk
of the superior court in the county where you do business,
including an affidavit as to the true names of the persons
who own the business.
Notice of the filing must also be published for two weeks
in a legal publication in the county where registered. A
corporation, LLC, or limited partnership doing business
under its own name is not required to register. Nor is
registration of a trade name required of any person who
is practicing a profession under a partnership name.
Failure to register a fictitious name is a misdemeanor, but
the only penalty is that in a court proceeding against another
party in the Georgia court system, the party that has failed
to register its fictitious business name will be charged
with court costs.
V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. In addition, since Georgia imposes a state income tax on the income of individuals, you will need to also withhold Georgia income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Department of Revenue on Form CRF-002 (which can also serve as your sales and use tax registration). You should also request a copy of the helpful Employer's Tax Guide, published by the Income Tax Division of the Department of Revenue. The frequency of filing and paying over state tax withheld from employees' wages depends on the amount of tax withheld. Georgia withholding tax returns and tax payments are due as follows:
The "lookback period" mentioned above is, for each calendar year, the 12-month period ending on June 30th of the preceding year. For more information on Georgia income tax withholding and registration requirements for employers, see the contact information for the offices of the Income Tax Division of the Georgia Department of Revenue, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. New employers are required to pay tax at a rate of 2.7% in 2009 on the first $8,500 of wages paid to each employee. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Georgia law, cannot be charged to your employees or withheld from their wages. In addition to filing unemployment tax returns and paying the tax, employers in Georgia are required to:
For more information on your Georgia unemployment tax obligations as an employer, see the contact information for the offices of the Unemployment Insurance Division of the Georgia Department of Labor, listed in Section VI(a), and request a copy of their Employer's Handbook publication. (c) Workers' Compensation. In Georgia, virtually all businesses with three or more employees in the state are required by law to have workers' compensation insurance, except those able to self-insure or participate in a group self-insurance plan. Real estate salespersons and brokers are not required to be covered. Note, however, that a sole proprietor or a partner in a partnership is generally not considered an employee, and thus is not required to be covered, but can voluntarily elect workers' compensation coverage by filing Form WC-10. Officers of a corporation or members of an LLC are considered to be employees, but may elect to be exempted from coverage, also by filing Form WC-10 with the insurer, or, if there is no insurer, by filing the form with the State Board of Workers' Compensation. No more than 5 officers of a corporation or 5 members of an LLC may be exempted from coverage. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. IMPORTANT NOTE: For more detailed information regarding your obligations as an employer under the Georgia workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the State Board of Workers' Compensation, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Georgia wage-hour laws, which provide for a state minimum hourly wage that is currently $5.15 an hour. Most employers, however, will be subject to the federal minimum wage law and the current $6.55 federal minimum wage, increasing to $7.25 on July 24, 2009. The Georgia minimum wage law contains a number of exemptions not found in the federal law, such as for employers with fewer than six employees or employers with sales of less than $40,000 per year. In addition to federal child labor laws, most businesses are subject to state child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must be aware of Georgia's state child labor laws, which generally apply only to children under the age of 16, although 17- and 18-year olds will remain subject to the federal law. With few exceptions, you will not be able to hire a minor under the age of 18 unless he or she provides you a certificate from a school superintendent (or principal of a private school) showing the minor's age and stating that he or she is physically fit to perform the job you are offering. Children under age 16 may not work in any occupations designated as hazardous and may not work during school hours. Georgia imposes a number of limitations on the hours a child under the age of 16 may work. They may work no more than:
Note that federal child labor laws, if applicable to a particular employer, are somewhat more restrictive than the above state restrictions on hours minors may work, and that whichever law is more restrictive, state or federal, is the law that applies. Georgia law generally prohibits any employment of children under the age of 12, with only a few limited exceptions, such as for work as models or entertainers, provided that the written approval of the state Department of Labor is first obtained for such work. For more information on Georgia's wage/hour and child labor laws, contact the Georgia Department of Labor, at the address listed in Section VI(a). (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within such states. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case in states with their own OSHA programs, where, if you request a safety consultation from the state agency and they detect violations, they will not cite you if you promptly correct the unsafe conditions. Georgia is one of the states that does not have its own local equivalent of OSHA. For information on your job safety and health obligations as an employer and OSHA required posters, see the contact information for the Atlanta offices of the federal OSHA (U.S. Department of Labor), listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Georgia labor laws you need to know about, as an employer, include the following: (1) Wage payments to employees. Unlike most states, Georgia does not have any special requirements for when a terminated or quitting employee must be paid his or her final wages. However, state law requires that you pay wages to employees at least twice a month, in general. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Georgia has a right-to-work law which prohibits an employer from denying employment to any person on account of membership or non-membership in a labor union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Georgia and must display a poster informing employees of their rights under the sex discrimination provisions of state law. Georgia generally leaves the enforcement of anti-discrimination laws in employment practices of the private sector to the federal government, but Georgia law prohibits sex discrimination by private employers of ten or more employees. Georgia state law also prohibits employers of 15 or more employees from discriminating against disabled persons, unless the disability restricts that person's ability to engage in that particular job or occupation, and also prohibits any employer from discriminating in employment on the basis of age, against any person between the ages of 40 and 70. State law also requires that employers must provide reasonable unpaid break time to female employees who need to express breast milk for an infant child. For more information on state civil rights laws in Georgia, contact the Georgia Commission on Equal Opportunity, at the address listed in Section VI(a). (4) Reporting new hires. Under new federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the Georgia New Hire Reporting Program for Georgia employers) within 10 days after the date of hire, unless filing electronically. Most other states allow 20 days to report new hires. If filing electronically, reports must be filed twice a month, on dates not more than 16 days apart. A federal Form W-4 withholding certificate can be submitted for a newly hired employee, if it has the employer's name, address, and federal tax identification number written on the top of each such form. See the contact information in Section VI(a), and the web site URL for the Georgia New Hire Reporting Program in Section VI(c). (5) Mass layoff notification. Georgia has a requirement that is somewhat similar to the federal "W.A.R.N. Act" that applies in the event of certain mass layoffs. Under the Georgia rule, where 25 or more employees of an employer separate from employment on the same day for the same reason, the employer is required to file a notice with the Georgia Department of Labor, on Form DOL-402, Mass Separation Notice. (6) Employment of illegal aliens. Georgia state law does not generally prohibit the employment of illegal aliens. However, since July 1, 2007, under the "Georgia Security and Immigration Compliance Act" of 2006, state law now prohibits public employers (state or local government entities) or their private contractors or subcontractors from employing anyone without first doing an electronic verification of their work eligibility. Also, effective January 1, 2008, state law disallows any Georgia income tax deduction by any business for payments of $600 or more in any year to an illegal alien. Any payment for labor services to an individual of $600 or more in a year will only be deductible if the worker is an "authorized employee," as defined by statute. This restriction does not apply to any worker who presents a valid driver's license or I.D. card issued by the Georgia Department of Driver Services. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Like many other states, Georgia now has a "one-stop" single agency to whom you can go for help with all your licensing and permitting requirements for your business under the laws of Georgia. While this office, the First Stop Business Information Center (part of the office of the Georgia Secretary of State) offers a central location where you can get advice about which licenses and permits should be obtained, you will still need to contact the various Georgia government agencies that are mentioned in this book or listed below on an individual basis, to obtain needed forms, official posters, information and other assistance from each such agency. The First Stop Center also publishes the First Stop Business Guide (July, 2005) identifying other resources provided by state government to assist small businesses. For further information contact the First Stop center at the address listed below for the Georgia Secretary of State. Also, you can register your business with the Georgia state Department of Revenue for sales and use tax, state employer withholding tax identification numbers, and various other taxes, such as alcohol, tobacco, and fuel taxes. You can either register on-line at the Department of Revenue web site or complete and submit a registration form, Form CRF-002, State Tax Registration Application. Note that registration with the Department of Revenue does not relieve a business from its requirement to register with the Secretary of State or any other agency. You must contact the appropriate agency to obtain their registration requirements. To obtain tax registration forms, and to be assigned a Georgia state taxpayer identification number (STIN), contact: Registration and Licensing Unit Or (street address): 1800 Century Center Blvd., N.E. Addresses and other contact information for other key Georgia state government agencies mentioned in this book are listed below for your convenience. BUSINESS STARTUP INFORMATION. A key office that can provide helpful information on getting your business up and running in Georgia is the lead Small Business Development Center (SBDC) in Georgia. See the address information on Georgia SBDCs, which is listed in Section VI(b). SECRETARY OF STATE. Contact the Secretary of State's office for information on:
Corporations Division Or, for help with permits, licensing and registration requirements in Georgia, contact the First Stop Business Information Center, also part of the office of the Secretary of State. You may want to request their First Stop Business Guide, a 34-page guide for Georgia businesses. It contains helpful information, though some of the tax information is out of date. Contact the First Stop Business Information Center at: First Stop Business Information Center Also see the separate address listing below for the Professional Licensing Boards Division of the secretary of state's office, for questions regarding state licensing. STATE LICENSES. The secretary of state is the main Georgia agency that manages the numerous state licensing boards. For information about any state licensing requirements, contact: Professional Licensing Boards Division TAXES. Obtain state income and other miscellaneous business tax forms, instructions, and information from the Department of Revenue, which is the main tax collection agency in Georgia. See other addresses for the Department of Revenue above (to register your business for sales tax, as an employer for state income tax withholding purposes, and other business taxes), and the other address listed below for the Sales and Use Tax Division. Georgia Department of Revenue STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
Georgia Department of Labor NEW HIRE REPORTING. Report newly hired (or rehired employees) to the following agency, by mail, fax, or telephone call, at the following address: Georgia New Hire Reporting Program STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Georgia sales and use tax law, from the Department of Revenue at the address listed above for that agency, for registration and for general sales tax matters. STATE UNEMPLOYMENT TAX. Contact the Unemployment Tax Division of the Georgia Department of Labor to determine whether you are an employer subject to payment of state unemployment taxes, and for information on your tax and other obligations under the unemployment compensation law, at the address listed above for the Georgia Department of Labor. WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information: State Board of Workers' Compensation STATE OSHA PROGRAM. There is no state OSHA program in Georgia. The federal government provides federal OSHA enforcement instead. For required posters and information on federal occupational safety and health laws that affect you as an employer in Georgia, contact: U.S. Department of Labor/OSHA STATE ANTI-DISCRIMINATION LAWS. For information on Georgia anti-discrimination laws, you should contact the Georgia Commission on Equal Opportunity (which is primarily engaged in enforcing private sector anti-discrimination rules under the fair housing laws; it only enforces employment discrimination laws that apply to employment practices of state government agencies): Georgia Commission on Equal Opportunity (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Georgia to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Administrative Office (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major Georgia state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Georgia. Since new sites are appearing frequently, you might also want to search for other Georgia government Web sites by using one of the popular Internet search engines, such as Google, MSN, AltaVista, or Yahoo. To start your Internet search for Georgia government information, you may want to begin with the following Internet sites: State of Georgia Home Page: Georgia Department of Revenue home page: Georgia Department of Labor: Georgia Secretary of State (and First Stop Business Information Center): State Board of Workers' Compensation: Georgia New Hire Reporting Center: Atlanta Development Authority: (d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Georgia, or contact the following Atlanta agency for information on small business loans in the city of Atlanta: Atlanta Development Authority The address of the SBA District Office in Atlanta is: U.S. Small Business Administration |
Copyright © 2009 Michael D. Jenkins
|