HB 1472: Income tax; term "small business"; revise definition

Georgia offers a state income tax deduction to businesses that pay certified minority, women owned, or veteran owned subcontractors on state contracts. That deduction, found in O.C.G.A. § 48-7-38, depends on the subcontractor qualifying as a 'small business.' Currently the tax code borrows its small business definition from a different part of Georgia law (O.C.G.A. § 50-5-121). This bill removes that cross-reference and writes a new definition directly into the tax code: a small business is one that is independently owned and operated with 300 or fewer employees or $30 million or less in gross receipts per year. The rest of the deduction, including the 10 percent subtraction and the $100,000 annual cap, stays the same. The change would take effect July 1, 2026, and apply to tax years starting on or after January 1, 2027.

• Replaces the tax code's borrowed definition of 'small business' with a standalone definition written directly into O.C.G.A. § 48-7-38.
• Sets the new definition as a business that is independently owned and operated with 300 or fewer employees or $30 million or less in yearly gross receipts.
• Leaves unchanged the existing 10 percent tax deduction for qualified payments to certified minority, women owned, or veteran owned subcontractors.
• Keeps the $100,000 per taxable year cap on the amount a taxpayer can subtract using this deduction.
• Sets an effective date of July 1, 2026, applying to tax years beginning on or after January 1, 2027.

Georgia businesses that hold state contracts and subtract payments to classified subcontractors from their taxable income, and the certified minority owned, women owned, and veteran owned subcontractors whose 'small business' status determines whether those payments qualify for the tax break.

Because eligibility for the subcontractor tax deduction depends on whether a subcontractor counts as a small business, changing the definition could shift which companies qualify. A fixed employee and revenue cap written directly into the tax code could include or exclude businesses differently than the current cross-referenced definition.

• Section 1 rewrites O.C.G.A. § 48-7-38(a)(2), deleting the reference to Code Section 50-5-121 and inserting a new definition based on employee count and gross receipts.
• The new definition sets two alternative thresholds: 300 or fewer employees, or $30 million or less in annual gross receipts.
• Section 1 leaves the definitions of 'classified subcontractor' and 'state contract' and the deduction mechanics in subsections (b) through (d) unchanged.
• Section 2 sets the effective date as July 1, 2026, applicable to taxable years beginning on or after January 1, 2027.
• Section 3 repeals any conflicting laws.

1. 2026-03-04House Second Readers (House)
2. 2026-03-03House First Readers (House)
3. 2026-02-26House Hopper (House)

• Marvin Lim (D, HD-098)Primary sponsor

• income tax
• small business definition
• state contracting
• minority business enterprise
• tax deductions