Georgia allows elective consolidated filing for post-2022 tax years

In brief

Applicable to tax years beginning on or after January 1, 2023, H.B. 1058, enacted on May 5,  allows taxpayers meeting specified requirements an election to file consolidated Georgia corporate income tax returns. 

The takeaway: Existing law requires taxpayers to request consolidated filing. The new law allows taxpayers the ability to elect consolidated treatment. Additionally, the new law removes the ability of the Department to compel consolidated filing. 

Existing statutory law does not provide guidance on what a consolidated return is, or what conditions must be satisfied for the Department to allow or require the filing of a consolidated return; rather, Georgia law granted the Department broad discretion to establish rules for consolidated returns. Accordingly, guidance regarding the administration of a consolidated return was solely the product of a regulation, Ga. Comp. R. & Regs. 560-7-3.13. 

The regulation provided that the Commissioner, as a condition for granting permission to file a consolidated return, could require such adjustments as they believed were necessary to more clearly and equitably reflect the taxpayer’s income. This authority frequently was employed by the Department and, as a result, taxpayers may have been discouraged from requesting permission to file a consolidated return. 

Many Georgia taxpayers may welcome the new law as it removes the current application process and the uncertainty that existed under it. 

Note: The Department’s authority to require combined unitary reporting under O.C.G.A. Sec. 48-7-31(e) remains unchanged following enactment of H.B. 1058.

Rules for consolidated filing

H.B. 1058 sets forth several requirements and rules for a consolidated filing, including:

• Each member of a Georgia affiliated group must be a member of the same federal affiliated group and must be subject to income tax (i.e., have nexus) in Georgia.
• The affiliated group filing election must be made on an originally filed return, including extensions.
• Each member of a Georgia affiliated group is considered a separate taxpayer and is required to separately allocate and apportion its income on a separate-entity basis.
• Losses among members. A member’s taxable loss is deductible against the taxable income of any other member only if and to the extent such loss is apportioned and allocated to Georgia. 
• Separate tax calculations. The group’s tax liability is determined by applying the tax rate to the group's taxable income. The separate taxable income or loss of each corporation in the Georgia affiliated group is included in the consolidated taxable income or loss to the extent that its taxable income or loss is separately apportioned or allocated to Georgia.
• Five-year election. The election is irrevocable and binding on both the Department and the group for five years. At the end of the five-year period, the taxpayer's election is automatically terminated. Upon the automatic termination, the taxpayer may re-elect to file a Georgia consolidated return. 
• A taxpayer that previously had been granted permission to file a Georgia consolidated return has the option to either continue to file consolidated under its existing agreement or terminate its consolidated filing agreement and, presumably, elect to file consolidated under H.B. 1058.

Observations: The legislation does not provide guidance about treatment of net operating loss carryforwards, use of credits by the combined group, or whether the election would terminate should the federal consolidated group terminate. The regulation that provides the current rules for consolidated reporting provides for SRLY limitations on separate-year losses;  it also requires that credits be limited to the pro forma, separate-company tax liability of the member that earned the credit. Although the current regulation does not address whether permission to file a consolidated return is terminated upon a change in the federal consolidated group, in practice such permission generally is terminated when the federal group changes.

A new consolidated return regulation may be issued and, if so, may be similar to the current consolidated return regulation given that both the old and new laws require a post-apportioned/post-allocated consolidation.