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Georgia’s Research & Development Tax Credit has not been a good investment when it comes to quantifiable dollars and cents, according to a new audit.
But the program is paying off in intangible ways, the Carl Vinson Institute of Government at the University of Georgia concluded in a report commissioned by the state Department of Audits and Accounts.
Businesses can receive a state R&D tax credit worth 10% of the company’s year-over-year increase in qualified research expenses. Between 2015 and 2020, the program cost the state from $190.5 million to $302.5 million in annual lost tax revenue, according to the Georgia Department of Revenue.
The incentive the tax credit provides resulted in only minimal additional spending on research and development. Since the credit increased R&D spending by only 5%, the audit concluded that 95% of what businesses are spending on research and development would have been spent even if the credit didn’t exist.
As a result, each $1 the state loses in tax revenue to the credit generates only 56 cents in economic impact, the audit found.
“Even after extrapolating indirect and induced economic impacts, the value proposition of Georgia’s R&D tax credit is low,” the audit concluded.
But that doesn’t tell the whole story. The audit asserted that some benefits of a research and development tax credit are intangible and can’t be tied to a single recipient of a credit.
“Research and development may elevate the profile of the state and local business environment,” the report stated. “While traditional economic impact modeling is designed to capture the effect of increased employment, spending, and taxation within a region, it may fail to fully account for the clustering effect of businesses, suppliers, and customers.”
The audit cited as an example two companies that relocated to Georgia so they can more easily collaborate on research and development.
“These relocations may also add to the state’s reputation as a good place to conduct business, another intangible that cannot be captured by a traditional quantitative impact,” the audit found.
The report also concluded that money companies invest in educational systems to help grow a pipeline of employees is another benefit that can’t be quantified.
The audit was the result of legislation the General Assembly passed in 2021 requiring periodic evaluation of Georgia tax credits and exemptions on a rolling five-year basis.
This story is available through a news partnership with Capitol Beat News Service, a project of the Georgia Press Educational Foundation.
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