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
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FAQs
Georgia Research and Development (R&D) Tax Credit FAQs
The Georgia R&D Tax Credit rewards businesses conducting qualified research in Georgia with a credit worth 10% of qualified research expenditures above the state's base amount. It's separate from and in addition to the federal R&D credit, so claiming the Georgia credit doesn't reduce the federal one.
Common qualifying activities include developing new or improved products, improving manufacturing processes, building custom software (including some internal-use software), and systematic testing or prototyping to resolve technical uncertainty. The research generally must be technological in nature and involve a genuine process of experimentation, not just routine engineering.
Any business conducting qualified research in Georgia may be eligible, there's no industry restriction. Manufacturers, software developers, life sciences companies, engineering firms, food and beverage producers, and businesses in many other sectors have successfully claimed this credit.
Qualifying costs include wages for employees, including supervisors and support staff, who spend time on qualified research, supplies consumed during the research, 65% of amounts paid to U.S.-based third-party research contractors, and rental or lease costs for computers used in the research.
Research conducted after commercial production has begun, routine customization of an existing product for a customer, duplicating an existing product or process, market research or surveys, and research funded by a government contract or grant generally don't qualify.
The Georgia credit equals 10% of qualified research expenditures that exceed the state's base amount. It's calculated independently from the federal R&D credit under IRC Section 41.
Yes. The Georgia credit is separate and additional, claiming it does not reduce the federal R&D credit, and the two are calculated and filed independently.
The Georgia credit is claimed on Form IT-RD with the Georgia Department of Revenue. The federal credit is claimed separately on Form 6765. Contemporaneous documentation of the qualifying research activities and expenditures is required to support the credit.
Yes. Credits that exceed the current year's Georgia tax liability may be applied against Georgia payroll withholding taxes, and any remaining unused credit can be carried forward for up to 5 years.