Georgia: Department Addresses Computation of Income when Taxpayer Treaty Protected for Federal Purposes

In a recent letter ruling, the Georgia Department of Revenue addressed whether a Canadian company was exempt from Georgia corporate income tax when it was exempt from federal income tax under the Canada-U.S. Treaty.  The taxpayer’s only connection with the United States was its continuous sales to U.S. customers that were facilitated by sales agents of a related company. The taxpayer had no employees, inventory or fixed assets in the U.S. and lacked a permanent establishment in the states. The Taxpayer appeared to concede that it was “doing business” in Georgia and was subject to Georgia corporate income tax.  However, the starting point in computing Georgia taxable income is “taxable income as defined in the Internal Revenue Code” subject to certain state specific modifications. The Department determined that if because of the Canada- U.S. Treaty, the taxpayer had no gross income effectively connected with the conduct of a trade or business in the United States, then it would have no taxable income for federal purposes. However, the Department ruled that although the taxpayer had no federal taxable income, it could still be subject to Georgia income taxes by having positive taxable net income as a result of any addition modifications required under Georgia law.  Please contact Andrew Grace at 404-222-7216 with questions on LR IT 2018-01.