02/23/2011

SINGLE FACTOR APPORTIONMENT: KEEPING TAXES LOW IN GEORGIA

In 2005, Georgia became the first state in the southeastern U.S. to adopt a Single Factor Gross Receipts Apportionment formula.  For many companies, this change resulted in a lower tax bill. For companies who pay state corporate income tax in Georgia, this apportionment formula treats a company’s gross receipts, or sales in Georgia, as the only relevant factor in determining the portion of that company’s income subject to the state corporate income tax rate of 6%.

Today Georgia is one of just 12 states using Single Factor Apportionment. Most states still use a traditional formula in which a company’s in-state property and payroll factor into the calculation of their corporate income tax. Single Factor Apportionment significantly reduces the effective tax rate of Georgia companies with substantial sales to customers outside of Georgia. In addition, Georgia does not use the “Throwback Rule,” which many states use to tax income from sales of goods or services to out of state customers if the customer’s state does not already tax that income.

For example, assume a Georgia company had the following in 2010:

Peaches and Semiconductors, Inc.

Total % in Georgia
Gross Receipts $10 million 13%
Employees 3000 20%
Property $300 million 25%

 

  • Using the traditional income tax formula: [Property in Georgia + Payroll in Georgia + Double Weighted Sales in Georgia] x [6% state income rate], the company’s tax liability would be: $106,500
  • Using Georgia’s current Single Factor apportionment formula, the company’s state corporate income tax liability would only be: $78,000

Georgia’s change to this new apportionment formula is one of the contributing factors in our state’s top rankings like:

  • #3 in business climate (Development Counselors International, 2008)
  • #3 in business climate (Site Selection magazine Executive Survey, 2009)
  • #6 best state for business (Forbes, 2009)
  • #7 best state for business (Chief Executive Magazine, 2010)
  • #10 best state for business (CNBC, 2010)
  • 1 of 8 best-managed states in nation (Pew Center, 2008: one of 8 states graded B+ or higher)

Companies find that the overall costs and barriers to doing business, even beyond the tax calculations and incentives, are exceedingly low in Georgia.

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GDEcD’s Corporate Solutions Team, focuses primarily on companies interested in locating Corporate Headquarters and Data Centers in the Southeast.

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