Perspectives

Georgia income subtraction for individual resident owners of flow-throughs

Multistate tax alert | February 11, 2015

This alert summarizes the Georgia Tax Tribunal’s recent summary judgment decision in ‘Rosenberg v. Macginnittie’ and offers some taxpayer considerations.

​'Rosenberg v. Macginnittie'

Overview

A recent summary judgment decision by the Georgia Tax Tribunal (“Tribunal”) in Rosenberg v. Macginnittie1 highlights a unique statutory provision that may allow individual residents to subtract, from adjusted gross income (“AGI”) used in determining Georgia tax, income received from a flow-through entity that was subject to an entity-level tax in another state.

The applicable statute permits an individual resident who is a partner in a partnership, a member of a limited liability company (“LLC”), or the single member of an LLC disregarded for federal income tax purposes to “make an adjustment to federal adjusted gross income for the entity’s income taxed in another state that imposes on the entity a tax on or measured by income.”2 The Rosenberg decision addresses whether this statute applies to individual owners of pass-through entities subject to the Texas Franchise Tax.3

In the decision, issued in response to the taxpayer’s motion for summary judgment, the Tribunal determined that the Texas Franchise Tax constitutes a tax “on or measured by income” for purposes of determining state taxable income for a Georgia individual resident.4

Although the case is not yet final, the Tribunal’s decision suggests that Georgia individual residents may be entitled to a subtraction from AGI for income received from a flow-through entity subject to the Texas tax in addition to entity-level income taxes imposed by other states.5

In this Tax Alert we summarize the Tribunal’s summary judgment decision and offer some taxpayer considerations.

1 Rosenberg v. Macginnittie, No. 1414626 (Ga. Tax Trib. Nov. 25, 2014).

2 Ga. Code Ann. § 48-7-27(d)(1)(C). A similar adjustment applies to Georgia resident shareholders of Subchapter “S” Corporations where another state does not recognize an S Corporation. Ga. Code Ann. § 48-7-27(d)(1)(B). Note, however, that Ga. Code Ann. § 48-7-27(d)(1)(B) was not at issue in the Tribunal’s decision in Rosenberg.

3 The Texas Franchise Tax is often referred to as the “Texas Margin Tax.”

4 Rosenberg v. Macginnittie, No. 1414626 at 43.

5 The Georgia Department of Revenue (“Department”) has indicated in court filings that the subtraction rule applies to income taxes such as the Tennessee excise tax. Id. at 11. To our knowledge, however, the Department has not provided a complete list of which other entity-level taxes qualify under the rule.

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The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

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