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By Zachary Atkins & Jonathan FeldmanThe Georgia Tax Tribunal held that the Texas Franchise Tax (the “TFT”) is a tax “on or measured by income” and allowed a Georgia resident, who indirectly owned an interest in a pass-through entity, to adjust his federal adjusted gross income for the amount of the entity’s income taxed in Texas for purposes of computing his individual Georgia taxable income. The pass-through entity was an LLC that operated in Texas and filed entity-level TFT reports. The Georgia Department of Revenue denied the taxpayer an adjustment (i.e., a reduction) to his individual Georgia taxable income to account for the amount of the LLC’s income that was subject to the TFT. According to Ga. Code Ann. § 48-7-27(d)(1)(C), individual residents who own an interest in a pass-through entity may reduce their federal adjusted gross income by the amount of the entity’s income that is “taxed in another state which imposes a tax on or measured by income.” The Department asserted that the TFT is not a tax on or measured by income but instead is a privilege or gross receipts tax and, in the alternative, that an adjustment is permissible only if the tax in question is a tax on or measured by net income. The tribunal disagreed, concluding that the TFT is a tax “on or measured by income” under either a broad or restrictive definition of “income” or “gross income” and regardless of whether one’s TFT liability is computed as 70% of total revenue, total revenue less cost of goods sold, or total revenue less compensation, because the calculation always begins with total revenue. The tribunal found that this conclusion was consistent with the legislative purpose of avoiding double taxation of the same income for pass-through entities and their individual owners. The tribunal also rejected the Department’s attempt to limit the availability of the adjustment to taxes on or measured by net income, explaining that such an interpretation would violate even the most basic rules of statutory construction. H. Alan Rosenberg v. Douglas J. Macginnittie, Commissioner, Georgia Department of Revenue, No. 1414626 (GA Nov. 25, 2014)