After a corporate group moves the employees and jobs behind a quality jobs tax credit into a new affiliated entity, can that entity continue the credit and assign it to other affiliates?

Plain-English summary

A corporate group historically employed the workers of one business through a single entity ("Taxpayer 1"), a disregarded entity taxed as a division of its owner. Those workers had generated quality jobs tax credits (QJTC) under O.C.G.A. § 48-7-40.17, used both against income tax and (via approved withholding benefits) against withholding tax, leaving unused carryforwards. For non-tax business reasons, the group formed a new disregarded LLC ("Taxpayer 2," also taxed as a division of the same owner) and transferred all of the location's employees -- and all of the jobs behind the credit -- to Taxpayer 2 as a contribution to capital (no consideration). Operations and accounting for the location stayed substantially the same. The group asked whether Taxpayer 2 could (1) continue the remaining credit installments and use the withholding-benefit carryforward, and (2) assign the credit to other affiliates.

The Department ruled yes to both:

• Continuing the credit (Issue 1): Taxpayer 2 can continue the remaining quality jobs tax credit installments for the maintained jobs, remains eligible for new quality jobs added during any remaining job-creation years, and can use Taxpayer 1's unused approved withholding-benefit carryforward -- so long as the transfer occurs in a taxable year beginning on or after January 1, 2018. (That date is when O.C.G.A. § 48-7-42(g) -- a general rule that unused credits transfer to and continue with a transferee even though a sale/merger/acquisition/bankruptcy creates no new eligibility -- applies.) To pick up the withholding-benefit carryforward, Taxpayer 2 must contact the Department's tax-credits group and provide a copy of the ruling.
• Assigning to affiliates (Issue 2): Taxpayer 2 can assign the QJTC it claims each year to Taxpayer 4 and other affiliates/disregarded entities in the affiliated group under O.C.G.A. § 48-7-42. But assignments must be made on an original income tax return (filed by the due date including extensions), not on a later amended return, and an income-tax credit carryforward cannot be assigned.

What this means for you

Corporate groups reorganizing where credits live

You can move the employees and jobs behind a quality jobs tax credit into a new affiliated entity and keep the credit alive -- but the timing matters. The transfer needs to fall in a tax year beginning on or after January 1, 2018 for § 48-7-42(g) to carry the unused credit to the successor. Plan the withholding-benefit carryforward hand-off with the Department's tax-credits group.

Accountants and tax professionals

Two mechanisms operate here. Section 48-7-42(g) carries an unused credit to a successor on a transfer (effective for tax years beginning on/after Jan. 1, 2018) -- the change that distinguishes this result from LR IT-2015-03, where a pre-2018 asset acquisition destroyed the QJTC because § 48-7-40.17 had no transfer provision. Section 48-7-42 (assignment) lets the credit be assigned among affiliates, subject to the original-return requirement and the bar on assigning a carryforward. Compare the credit-continuity results in LR IT-2014-03 (LLC conversion) and the investment/job-credit successor rulings LR IT-2010-01/2013-01/2014-02.

Common questions

Q: Can the new entity keep claiming the quality jobs credit after the employees move to it?
A: Yes, if the transfer occurs in a taxable year beginning on or after January 1, 2018. It can continue the remaining installments, add new quality jobs in remaining creation years, and use the unused withholding-benefit carryforward.

Q: Why does the January 1, 2018 date matter?
A: That is when O.C.G.A. § 48-7-42(g) applies, allowing an unused credit to transfer to and continue with a transferee. Before that, the quality jobs credit statute had no transfer provision (see LR IT-2015-03).

Q: Can the credit be assigned to other companies in the group?
A: Yes, to affiliated entities under O.C.G.A. § 48-7-42 -- but only on an original return filed by the due date (including extensions), and a carryforward cannot be assigned.

Q: Can another taxpayer rely on this ruling?
A: No. It binds the Department only as to the requesting taxpayer and its specific facts and has no precedential value for others.

Citations and references

Statutes and regulations:

• O.C.G.A. § 48-7-40.17 -- quality jobs tax credit
• Revenue Regulation 560-7-8-.51 -- quality jobs tax credit rules
• O.C.G.A. § 48-7-42 -- assignment of income tax credits to affiliated entities (original-return requirement; carryforward not assignable)
• O.C.G.A. § 48-7-42(g) -- sale/merger/acquisition/bankruptcy creates no new eligibility, but unused credit transfers to and continues with the transferee (all chapter credits)
• O.C.G.A. § 48-7-103 -- credit against quarterly/monthly withholding payments

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2020-01

Original ruling text

Georgia Letter Ruling:
Topic
Date Issued:

LR IT-2020-01
Quality Jobs Tax Credit
January 15, 2020

This letter is in response to your letter requesting a ruling that after the transfer of employees from
Taxpayer 1 to Taxpayer 2, Taxpayer 2 can claim quality jobs tax credit carry forward generated
by Taxpayer 1, and Taxpayer 2 can claim and assign the remaining quality jobs tax credit
installments for new quality jobs created by Taxpayer 1.
Facts as Presented by the Taxpayer
Your letter to the Department states: “Taxpayer 3 is the parent holding company of a group of
subsidiaries . Historically, employees of the business have been
employed by a single entity, Taxpayer 1. Taxpayer 1 is owned wholly by Taxpayer 4, an affiliate
of the . Taxpayer 1 is disregarded as an entity distinct from its owner for
federal and Georgia income tax purposes and is, therefore, taxed as a division of Taxpayer 4.
“Many of the employees previously hired by Taxpayer 1 have given rise to quality jobs credits
(‘QJTC’) pursuant to O.C.G.A. § 48-7-40.17. Those credits were claimed on corporate income
returns filed by the regarded owner of Taxpayer 1; however, IT-WH’s were filed each year electing
to use the credits that exceeded the owner’s income tax liability against the employee withholding
tax liabilities of Taxpayer 1. As a result, Taxpayer 1 has unused QJTC carryforwards that may be
used against its employee withholding tax. Taxpayer 1 is presently eligible to claim further
installments of credits for quality jobs that have been created within the preceding four (4) years
and are being retained; and Taxpayer 1 remains eligible to claim additional credits for new quality
jobs that are added in the future.
“The new quality jobs for which the credits have been claimed are exclusively jobs at location in , Georgia. .
“For business reasons unrelated to tax, Taxpayer 4 plans to create a new LLC (Taxpayer 2) that
will be disregarded for federal and Georgia income tax purposes and taxed as a division of
Taxpayer 4. Taxpayer 1, which is a brother/sister to Taxpayer 2, will transfer all employees at the
to Taxpayer 2. This series of transactions (i.e., the formation of Taxpayer 2 and transfer
of the employees) is hereinafter referred to as the ‘Taxpayer 1 Restructuring.’
Subsequent to the Taxpayer 1 Restructuring, the activities of the transferred employees will remain
substantially the same. Going forward, all employees will be hired and employed
by Taxpayer 2. Prior to the Restructuring, Taxpayer 1 was separately compensated by affiliates
for the services performed by the transferred employees. That arrangement will
remain in place, but with the compensation being recognized by Taxpayer 2. The
business has historically considered the to be an identifiable segment of its business,
and the business has separately accounted for its costs and associated revenues.
This method of accounting will remain unchanged subsequent to the Taxpayer 1 Restructuring.
“ the Restructuring does not result in the transfer of all or substantially all employees
and operations of Taxpayer 1, . All employees at the will be transferred.
All of the jobs that give rise to the QJTC will be transferred to Taxpayer 2. The transfer of the

LR IT-2020-01
Quality Jobs Tax Credit
January 15, 2020
Page 2 of 4
jobs will not be done in exchange for any kind of consideration from Taxpayer 1. It will be
accounted for as a contribution to the capital of Taxpayer 2.”
Issue # 1
Whether after the transfer of employees, which were claimed for the quality jobs tax credit, from
Taxpayer 1 to Taxpayer 2, Taxpayer 2 can continue to claim the remaining quality jobs tax credit
installments for new quality jobs created by Taxpayer 1 and remain eligible to claim additional
quality jobs tax credit for new quality jobs that are added in the future during any remaining job
creation years, if any. Also, whether Taxpayer 2 can utilize Taxpayer 1’s unused approved
withholding benefit carry forward for new quality jobs created by the legal entity Taxpayer 1?
Issue # 2
Whether after the transfer of employees, which were claimed for the quality jobs tax credit, from
Taxpayer 1 to Taxpayer 2, Taxpayer 2 can assign a portion of quality jobs tax credit claimed each
year to Taxpayer 4, other affiliates of Taxpayer 4, and /or other disregarded entities that are taxed
as a division of Taxpayer 4 or other corporate affiliates included in the Taxpayer 1 affiliated group?

Authorities
O.C.G.A. § 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, 48-7-40.2, 48-7-40.3, 48-7-40.4, 48-7-40.7, 48-740.8, 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. . .”
O.C.G.A. § 48-7-42 (b) and (c) provide that:
“(b) In lieu of claiming any Georgia income tax credit for which a taxpayer
otherwise is eligible for the taxable year (such eligibility being determined for this
purpose without regard to any limitation imposed by reason of the taxpayer's
precredit income tax liability), the taxpayer may elect to assign such credit in whole
or in part to one or more affiliated entities for such taxable year by attaching a
statement to the taxpayer's return for the taxable year; provided, however, that no
carryover attributable to the unused portion of any previously claimed or assigned
credit may be assigned or reassigned, except as provided in subsection (d) of this

LR IT-2020-01
Quality Jobs Tax Credit
January 15, 2020
Page 3 of 4
Code section. Such election must be made on or before the due date for filing the
applicable income tax return, including any extensions which have been granted.
In the case of any credit that must be claimed in installments in more than one
taxable year, the election under this subsection may be made on an annual basis
with respect to each such installment, provided that the taxpayer shall notify the
commissioner with respect to the assignment of each such installment by filing a
separate copy of the election statement for such installment no later than the due
date for filing the applicable income tax return, including any extensions which
have been granted. Once made, an election under this subsection shall be
irrevocable.
(c) The recipient of a tax credit assigned under subsection (b) of this Code section
shall attach a statement to its return identifying the assignor of the tax credit, in
addition to providing any other information required to be provided by a claimant
of the assigned tax credit. With the exception of the transferable credits in Code
Sections 48-7-29.8, 48-7-29.12, 48-7-40.26, and 48-7-40.26A, the recipient of a
tax credit assigned under subsection (b) of this Code section shall also be eligible
to take any credit against payments due under Code Section 48-7-103, subject to
the same requirements as the assignor of such credit at the time of the assignment.”
O.C.G.A. § 48-7-42 (g) provides that:
“(g) For the purposes of all credits provided for by this chapter, the sale, merger,
acquisition, or bankruptcy of any taxpayer shall not create new eligibility for the
succeeding transferee in such transaction or event, but any unused credit eligible
to be applied against income tax liability under this article may be transferred and
continued by such transferee and applied against the transferee's income tax
liability under this article.”
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 560-7-8-.51 must be satisfied. The Department’s records indicate that Taxpayer 1 was
approved to use the quality jobs tax credit against withholding for .
Based on the facts stated herein, it is the opinion of this Department that after the transfer of the
employees, which were claimed for the quality jobs tax credit, from Taxpayer 1 to Taxpayer 2,
Taxpayer 2 can continue to claim the remaining quality jobs tax credit installments for the new
quality jobs maintained by Taxpayer 2 that were created and claimed by the legal entity Taxpayer
1, so long as the transfer of employees occurs in a taxable year beginning on or after January 1,
2018. Taxpayer 2 is eligible to claim new quality jobs tax credit for new quality jobs that are

LR IT-2020-01
Quality Jobs Tax Credit
January 15, 2020
Page 4 of 4
added in the future during any remaining job creation years, if any. Also, Taxpayer 2 can claim
any unused approved withholding benefit carry forward for new quality jobs created by the legal
entity Taxpayer 1. Taxpayer 2 must contact the tax credits group in the Department’s Taxpayer
Services Division and request that the unused approved withholding benefit carry forward be
transferred to Taxpayer 2, and they should provide a copy of this letter ruling when they make this
request.
Ruling on Issue #2
Based on the facts stated herein, it is the opinion of this Department that after the transfer of the
employees, which were claimed for the quality jobs tax credit, from Taxpayer 1 to Taxpayer 2,
Taxpayer 2 can assign the quality jobs tax credit claimed in a year (for the remaining quality jobs
tax credit installments and new quality jobs tax credit for new quality jobs that are added in the
future during any remaining job creation years, if any) to an affiliated entity as provided in
O.C.G.A. § 48-7-42. Therefore, Taxpayer 2 can assign the quality jobs tax credit claimed in a year
to Taxpayer 4, other affiliates of Taxpayer 4, and/or other disregarded entities that are taxed as a
division of Taxpayer 4 or other corporate affiliates included in the Taxpayer 1 affiliated group.
Please note that assignments must be made on an original income tax return (return filed before
the due date including extensions), assignments cannot be made on an amended return filed after
the due date including extensions. And income tax credit carry forward cannot be assigned.

The opinions expressed in this ruling are based upon the information contained in your request and
limited to the specific transactions, facts, circumstances and taxpayer in question. The facts herein
are those presented by the taxpayer and the Department accepts them as true for this ruling. If the
facts presented herein change, are not true, are different, or material facts have been omitted, the
conclusions reached in this ruling may change. In addition, subsequent statutory or administrative
rule changes or judicial interpretations of the statutes or rules upon which this advice is based may
subject similar future transactions to a different tax treatment than that expressed in this ruling.