Georgia Research and Development (R&D) Tax Credit
Georgia offers a state-level Research and Development Tax Credit for businesses conducting qualified research activity within the state. It is claimed in addition to the federal R&D Tax Credit (Internal Revenue Code § 41) and is governed by O.C.G.A. § 48-7-40.3.
Program at a Glance
| Credit amount | 10% of qualified research expenditures that exceed the Georgia base amount |
| Applies against | Georgia state income tax and excess credits may be applied against Georgia payroll withholding taxes |
| Carry forward | 5 years |
| Federal credit | Separate and additional: the Georgia credit does not reduce the federal credit |
| Statute | O.C.G.A. § 48-7-40.3 |
Eligibility
Any business conducting qualified research in Georgia may be eligible. There are no industry restrictions and the credit is available to manufacturers, software developers, life sciences companies, engineering firms, food and beverage producers, and businesses in any other sector that conducts systematic research or experimentation to develop or improve products, processes, software, or techniques.
What Qualifies as Research
Qualifying research must satisfy the federal four-part test established under IRC § 41:
- Technological in nature: the research must rely on principles of physical, biological, computer, or engineering science
- Permitted purpose: the research must be intended to develop a new or improved product, process, software, technique, formula, or invention
- Elimination of uncertainty: the research must seek to eliminate technical uncertainty about the development or improvement
- Process of experimentation: the research must involve a systematic process of evaluation, including testing and modeling
Qualifying Expenditures
- Wages paid to W-2 employees for time spent on qualified research activities (including supervisors and support personnel)
- Supplies consumed in the conduct of qualified research
- 65% of amounts paid to third-party contractors for qualified research performed in the U.S.
- Rental or lease costs for computers used in qualified research
Activities That Commonly Qualify
- Developing new products or significantly improving existing products
- Developing or improving manufacturing processes
- Building custom software, including internal-use software under certain conditions
- Conducting systematic testing or prototyping to resolve technical uncertainty
- Experimenting with materials, formulas, or technologies
Activities That Do Not Qualify
- Research conducted after commercial production begins
- Adaptation of existing products or processes to customer specifications
- Duplication of an existing product or process
- Research in the social sciences, arts, or humanities
- Market research, surveys, or efficiency surveys
- Research funded by a contract, grant, or government
How to Claim
The Georgia R&D credit is claimed on Form IT-RD filed with the Georgia Department of Revenue. The federal credit is claimed on Form 6765 attached to the federal income tax return. Contemporaneous documentation of qualifying activities and expenditures is essential and required to substantiate the credit in the event of an audit.
Key Notes
- Proper documentation is critical: the R&D credit requires considerable support and substantiation which should be done during the tax credit study
- The Georgia credit is 10% of qualifying Georgia research expenditures above the Georgia base amount. It functions similarly to the federal credit but is calculated independently
- Credits exceeding the current year’s Georgia tax liability may be applied against Georgia payroll withholding taxes and can also carry forward for 5 years
Schedule a time to connect and take a closer look HERE.