Georgia Income Tax on Estates & Trusts and Amended Definition of Taxable Nonresident

In Georgia, estates & trusts are subject to state income tax. In 2010, the state legislature amended the definition of taxable nonresident to include nonresidents who regularly engaged in certain financially profitable transactions or received deferred compensation or income from stock options in the state in a prior year. In this Analysis, Diane L. Mutolo, author of How to Save Time & Taxes Preparing Fiduciary Income Tax Returns, discusses the Georgia income taxation of estates and trusts and the amended definition of taxable nonresident. She writes:

Income Taxation of Estates and Trusts in Georgia.

     The Georgia income tax applies to estates and trusts and is imposed upon fiduciaries under Ga. Code Ann. § 48-7-20. Ga. Code Ann. § 48-7-20(d) provides that the Georgia income tax "applies to the Georgia taxable net income of estates and trusts, which shall be computed in the same manner as in the case of a single individual." Section 48-7-20(d) further provides that "[t]he tax shall be computed on the Georgia taxable net income and shall be paid by the fiduciary."

     ....

     As explained in How to Save Time & Taxes Preparing Fiduciary Income Tax Returns, the Georgia income tax imposed upon fiduciaries is levied, collected, and paid annually with respect to:

(1) that part of the net income of the estate or trust which has not become distributable during the taxable year;

(2) the taxable net income received during the taxable year by a deceased individual who at the time of death was a taxpayer and who died during the taxable year or subsequent to the taxable year without having made a return; and

(3) the entire taxable net income of an insolvent or incompetent person, whether or not any portion of the taxable net income is held for the future use of the beneficiaries, when the fiduciary has complete charge of the net income.

     ....

Deferred Compensation and Income from the Exercise of Stock Options

     The definition of a taxable nonresident of Georgia for Georgia income tax purposes was amended by the Georgia General Assembly in 2010. As noted in paragraph (5) above, under Ga. Code Ann. § 48-7-1(11)(E), the definition of a taxable nonresident of Georgia now includes a Georgia nonresident who regularly engages in a prior year within the state in activity for financial gain or profit and who receives income from such activity in the form of deferred compensation or income from the exercise of stock options. As noted in How to Save Time & Taxes Preparing Fiduciary Income Tax Returns, this rule applies where the income exceeds the lesser of 5 percent of the income received by the person from all places during the tax year or $5,000.00. In addition, as noted in How to Save Time & Taxes Preparing Fiduciary Income Tax Returns, the new rule does not apply in the case of an individual who receives this type of income when Georgia is prohibited from taxing the income pursuant to federal law.

     Discussing H.B. 1198, the bill which adopted the new rule, the Georgia Department of Revenue's articulation of the rule (in the 2010 General Instructions for Forms 500 and 500EZ) is as follows:

This bill requires a nonresident who receives deferred compensation or income from the exercise of stock options that were earned in Georgia in a prior year, to pay tax on the income, but only if the prior year's income exceeds the lesser of: 5 percent of the income received by the pension in all places during the current taxable year; or $5,000.00.

(footnotes omitted)

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