By Madison Barnett and Jonathan Feldman

Eight months ago, the Georgia Tax Tribunal held in Rosenberg that the Texas franchise tax (TFT) is a tax “on or measured by income” that qualifies for the pass-through entity owner’s subtraction modification available to individual Georgia residents (See prior coverage). Practitioners have been anxiously awaiting word on whether the ruling would be appealed and for guidance on how to calculate the subtraction modification. The remaining issues in the case have been settled, and the Tribunal has issued a Final Consent Order, which includes the following:

  1. The parties agreed not to appeal the earlier TFT ruling.
  2. The individual owner’s subtraction modification was calculated by multiplying the partnership’s pre-apportioned, Georgia-adjusted income by the partnership’s apportionment factor in each state where it was subject to a qualifying tax (e.g., the TFT), then multiplying the result by the owner’s distributive share percentage.
  3. The TFT report year used for the above calculation is the report year that covers the accounting period coinciding with the taxpayer’s relevant tax year (i.e., the entity’s 2009 TFT report was used to determine the individual owner’s subtraction modification on his 2008 Georgia individual return).

Georgia resident owners of pass-through entities subject to the TFT should consider the impact of this case when filing their 2014 returns and the impact on all tax years open under Georgia’s statute of limitations. Rosenberg v. Riley, No. 1414626, Final Consent Order (Ga. Tax Trib. July 13, 2015).