Single Factor Apportionment

In 2005, Georgia became the first state in the Southeast to adopt a “Single Factor Gross Receipts” apportionment formula. This apportionment formula treats a company’s gross receipts (or sales) in Georgia as the only relevant factor in determining the portion of that company’s income subject to Georgia’s six percent corporate income tax. Georgia is one of only 13 states exclusively using Single Factor Apportionment. Most states still use a traditional apportionment formula in which a company’s in-state property and payroll factor into the calculation of a company’s corporate income tax. Single Factor Apportionment significantly reduces the effective rate of Georgia income taxation of companies with substantial sales to customers outside Georgia. In addition, Georgia does not use the so-called “Throw Back Rule,” which many states use to tax income from sales of goods or services to out-of-state customers if the customer’s state does not already tax that income.

Example: Assume for the 2012 tax year, In-State Manufacturing Co., Inc. has the following total overall taxable income and gross receipt sales in Georgia as compared to total gross receipts: Taxable Income: $10 million Percent of Gross Receipts in Georgia: 5 percent

Accordingly, in 2012, only $500,000 of In-State Manufacturing Co., Inc.’s income would be subject to Georgia’s six percent corporate income tax, making its corporate income tax liability $30,000. [($10 million x 5%) x 6%] To many companies, Georgia’s single factor apportionment formula could mean savings of hundreds of thousands or even millions of dollars over the long term.