Trawick Construction Co. Inc. v. Georgia Dept. of Revenue

Prior to October 1, 1999, Trawick Construction Company, Inc. was a closely-held Florida corporation. For federal income tax purposes, Trawick was treated as a Subchapter S corporation. As a result, Trawick’s shareholders, instead of the corporation itself, were required to report their proportionate share of Trawick’s taxable business income on their individual tax returns and pay the appropriate federal income taxes. For Georgia state income tax purposes, however, Trawick was a Subchapter C corporation which paid taxes directly to the State of Georgia on business income which was apportioned to this state. See generally Graham v. Hanna , 297 Ga. App. 542, 543 677 SE2d 686 2009. Thus, we note from the outset that the dissent is mistaken when it asserts, without authority, that, “in Georgia, however, the shareholders must stand in the place of the corporate taxpayer, paying its tax from the proceeds passed through to them.” Dissenting opinion, p. 8 On October 1, 1999, Trawick’s shareholders sold all of their stock in Trawick and a sister company to Quanta Services, Inc. for $36,500,000. Pursuant to the stock purchase agreement and Section 338 h 10 of the Internal Revenue Code, 26 USC § 338 h 10, an election was made to treat the transaction as a deemed sale of all corporate assets, the majority of which was goodwill. For the shortened tax year ending on October 1, 1999, Trawick included the gain from the deemed sale of assets in its reported federal taxable income and apportioned a small percentage of that amount to this state, resulting in Georgia income tax of $47,980.

In 2004, the Georgia Department of Revenue, based upon a different apportionment, assessed Trawick an additional $224,820 in income tax, along with accrued interest. An administrative law judge ALJ concluded that the additional assessment was erroneous, but the State Revenue Commissioner reversed that decision. On judicial review, the superior court reversed the Commissioner’s decision, and the Court of Appeals reversed the judgment of the superior court. Georgia Dept. of Revenue v. Trawick Constr. Co. , 296 Ga. App. 275 674 SE2d 350 2009. We granted certiorari to consider the Georgia corporate income tax implications of an election under § 338 h 10 of the Internal Revenue Code by the shareholders of a federal Subchapter S corporation.