When a company that earned Georgia's quality jobs tax credit simply converts to an LLC, can the converted entity keep and continue that credit and its carryforward?

Plain-English summary

A company ("Taxpayer 1") had qualified for and claimed Georgia's quality jobs tax credit (QJTC) -- both against income tax and, via approved withholding benefits, against employee withholding. As part of a larger acquisition, it planned to convert to an LLC ("Taxpayer 2") under state LLC-conversion statutes. It asked whether, after the conversion, the converted entity could (1) let its ultimate taxpaying owners claim the income-tax carryforwards and claim the unused approved withholding-benefit carryforward for jobs Taxpayer 1 created, (2) continue the remaining credit installments, and (3) qualify new quality jobs it creates without having to re-qualify from scratch.

The Department said yes to all. A conversion is treated as a continuation of the same business, not a sale to a new taxpayer. So the converted entity may claim the income-tax and withholding-benefit carryforwards for Taxpayer 1's jobs, may continue the remaining installments, and -- for new quality jobs created during the remaining years of the seven-year credit-creation period -- qualifies without separately re-meeting O.C.G.A. § 48-7-40.17 and Regulation 560-7-8-.51. In the Department's words, the converted entity "will continue to claim the quality jobs tax credit as if they were the legal entity Taxpayer 1."

What this means for you

Businesses changing entity form

A pure change of form -- for example, converting a corporation to an LLC under a state conversion statute -- should not cost you an earned quality jobs tax credit. The converted entity steps into the original's shoes for both the carryforwards and the ongoing seven-year credit-creation window.

Accountants and tax professionals

This is a conversion ruling, and its permissive result turns on that. Contrast the Department's treatment of a sale/asset acquisition of a QJTC taxpayer in LR IT-2015-03, where the credit was lost because O.C.G.A. § 48-7-40.17 (at that time) had no sale/merger/acquisition/bankruptcy transfer provision -- and LR IT-2020-01, where a later statutory change (O.C.G.A. § 48-7-42(g), for tax years beginning on or after January 1, 2018) allowed unused credits to transfer to a successor. Here, because the transaction was a conversion rather than a sale, none of that was needed.

Common questions

Q: Does converting to an LLC forfeit the quality jobs tax credit?
A: No. The Department treated the conversion as a continuation of the same business, so the converted entity keeps the carryforwards and continues the credit installments.

Q: Do new jobs created after the conversion have to re-qualify for the credit?
A: No -- as long as they are created during the remaining years of the seven-year credit-creation period, they qualify without the converted entity re-qualifying under § 48-7-40.17 and Regulation 560-7-8-.51.

Q: Can the converted entity use the unused withholding-benefit carryforward?
A: Yes. The Department ruled the converted entity can claim the unused approved withholding-benefit carryforward for the quality jobs created by the original entity.

Q: Can another company rely on this ruling?
A: No. A Georgia letter ruling binds the Department only for the requesting taxpayer and the specific facts, with no precedential value for others.

Citations and references

Statutes and regulations:

• O.C.G.A. § 48-7-40.17(b) -- quality jobs tax credit; election out of other jobs/investment credits for the same project; 50-new-quality-jobs threshold
• Revenue Regulation 560-7-8-.51(4)(b) -- 50-job averaging rule; forfeiture and resumption of the credit schedule

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2014-03

Original ruling text

Georgia Letter Ruling:
Topic:
Date Issued:

LR IT-2014-03
Quality Jobs Tax Credit
June 9, 2014

This letter is in response to your letter requesting a ruling that after Taxpayer 1 converts to Taxpayer 2, Taxpayer 2
can claim quality jobs tax credit carry forward generated by Taxpayer 1, and Taxpayer 2 can qualify for the quality
jobs tax credit.
Facts as Presented by Taxpayer
Your letter to the Department states: “On , Taxpayer 1 entered into an agreement to acquire 100 percent of
the outstanding equity of Taxpayer 3 in a series of transactions expected to close during (the
‘Acquisition’). To facilitate the Acquisition, Taxpayer 1 will engage in a series of internal restructurings prior to the
Acquisition. Additionally, following the Acquisition, Taxpayer 1 and Taxpayer 3 will enter into a series of
restructuring transactions to integrate operations of the combined enterprise. As part of the restructuring, Taxpayer
1 will convert to an LLC (Taxpayer 2) pursuant to applicable LLC conversion statutes. Note, for purposes
of this redacted letter ruling, parts of the restructuring that are not pertinent to this ruling have been omitted.
Issue #1
Whether, after Taxpayer 1 converts to Taxpayer 2, the ultimate taxpaying owners of Taxpayer 2 can claim the
income tax carry forwards of the quality jobs tax credit for new quality jobs created by the legal entity Taxpayer 1
and can the legal entity Taxpayer 2 claim any unused approved withholding benefit carry forward for new quality
jobs created by the legal entity Taxpayer 1.
Issue #2
Whether, after Taxpayer 1 converts to Taxpayer 2, Taxpayer 2 can continue to claim the remaining quality jobs tax
credit installments for jobs created by Taxpayer 1. Also whether, after Taxpayer 1 converts to Taxpayer 2, new
quality jobs created by the legal entity Taxpayer 2 qualify for the quality jobs tax credit without the legal entity
Taxpayer 2 having to qualify again under O.C.G.A. § 48-7-40.17 and Revenue Regulation 560-7-8-.51?
Analysis
Georgia Code § 48-7-40.17 (b) provides in part that:
“(b) A taxpayer establishing new quality jobs in this state or relocating quality jobs into this state
which elects not to receive the tax credits provided for by Code Sections 48-7-40, 48-7-40.1, 487-40.2, 48-7-40.3, 48-7-40.4, 48-7-40.7, 48-7-40.8, and 48-7-40.9 for such jobs and investments
created by, arising from, related to, or connected in any way with the same project and, within one
year of the first date on which the taxpayer pursuant to the provisions of Code Section 48-7-101
withholds wages for employees in this state and employs at least 50 persons in new quality jobs in
this state, shall be allowed a credit for taxes imposed under this article. . .”
Revenue Regulation 560-7-8-.51 (4)(b) provides that:
“(b) In the taxable year in which the taxpayer first employs at least fifty (50) persons in new
quality jobs, the taxpayer shall be entitled to claim the quality jobs tax credit even if the average
number of new quality jobs is less than fifty (50) for such taxable year. However, in subsequent
taxable years the average number of new quality jobs must be at least fifty (50) for a taxable year
in order for the new quality jobs to be claimed. If such fifty (50) new quality jobs requirement is
not met, the taxpayer shall forfeit the right to claim the credit for such jobs in such taxable year.
However, if in a subsequent taxable year such fifty (50) new quality jobs requirement is met, the
taxpayer may continue taking the credit and shall resume the credit schedule from when the credit
was initially claimed.”

LR IT-2014-03
Quality Jobs Tax Credit
June 9, 2014

Page 2 of 2

Ruling
Ruling on Issue #1
To qualify for the quality jobs tax credit all requirements in O.C.G.A. § 48-7-40.17 and Revenue Regulation 560-78-.51 must be satisfied. The Department’s records indicate that Taxpayer 1 claimed the quality jobs tax credit on
their and income tax returns. The Department approved Taxpayer 1 for use against
withholding for ; and the Department approved Taxpayer 1 for use against withholding for
.
Based on the facts stated herein, it is the opinion of this Department that after Taxpayer 1 converts to Taxpayer 2,
the ultimate taxpaying owners of Taxpayer 2 can claim the income tax carry forwards of the quality jobs tax credit
for new quality jobs created by the legal entity Taxpayer 1 and the legal entity Taxpayer 2 can claim any unused
approved withholding benefit carry forward for new quality jobs created by the legal entity Taxpayer 1.
Ruling on Issue #2
Based on the facts stated herein, it is the opinion of this Department that after Taxpayer 1 converts to Taxpayer 2,
Taxpayer 2 can continue to claim the remaining quality jobs tax credit installments for jobs created by Taxpayer 1.
Also, after Taxpayer 1 converts to Taxpayer 2, new quality jobs created by the legal entity Taxpayer 2 during the
remaining years of the seven year credit creation period will qualify for the quality jobs tax credit without the legal
entity Taxpayer 2 having to qualify again under O.C.G.A. § 48-7-40.17 and Revenue Regulation 560-7-8-.51.
Essentially, the legal entity Taxpayer 2 will continue to claim the quality jobs tax credit as if they were the legal
entity Taxpayer 1.
The opinions expressed in this ruling are based upon the information contained in your request and are limited to the
specific transactions and taxpayer in question. A ruling has no precedential value except to the person to whom the
ruling was issued and then only for the specific transaction addressed in the ruling. Should the circumstances
regarding this transaction change, or differ materially from those represented, then this ruling may become
invalid. In addition, please be advised that subsequent statutory or administrative rule changes or judicial
interpretations of the statutes and rules upon which this advice is based may subject similar future transactions to a
different tax treatment than those expressed in this response.