Georgia Gov. Nathan Deal has signed legislation containing sales and use tax provisions related to the taxation of motor vehicles, nexus, incentives, and tax holidays. Developing details of the bill pertaining to sales and use tax were previously reported. (TAXDAY, 2012/03/22, S.6; TAXDAY, 2012/03/26, S.10) The legislation is known as the Georgia Jobs and Family Tax Reform Plan, and it reflects recommendations of the Georgia Competitiveness Initiative. Corporate and personal income tax provisions related to personal exemptions, retirement income, and the credit for the donation of property for conservation purposes are reported separately. (TAXDAY, 2012/04/20, S.8)
Repeal and Replacement of Sales Tax on Motor Vehicles
For motor vehicles titled in Georgia on or after March 1, 2013, the legislation repeals the imposition of sales and use taxes (other than special district transportation sales and use taxes) and ad valorem taxes. In place of these taxes, a state title fee and a local title fee will be imposed. These fees are considered alternative ad valorem taxes. Sales and use tax will continue to apply to leases or rentals of motor vehicles. Further details concerning the repeal of the ad valorem tax and the imposition of the new title fees are reported separately. (TAXDAY, 2012/04/23, S.10)
Sales Tax Nexus
Click-through nexus and expansion of “dealer” definition: The legislation expands the law, effective July 18, 2012, to make a “dealer” required to collect tax from any person who enters into an agreement with one or more persons who are Georgia residents under which the resident, for a commission or other consideration, based on completed sales, directly or indirectly refers potential customers (whether by a link on an Internet website, an in-person oral presentation, telemarketing, or otherwise) to the person, if the cumulative gross receipts from sales by the person to customers in Georgia who are referred to the person by all residents with this type of an agreement with the person is more than $50,000 during the preceding 12 months. The presumption that such a person qualifies as a dealer in Georgia can be rebutted by submitting proof that the in-state residents with whom the person has an agreement did not engage in any activity within Georgia that was significantly associated with the person’s ability to establish or maintain the person’s market in the state during the preceding 12 months.
Effective October 1, 2012, it is rebuttably presumed that a “dealer” is one who makes sales of tangible personal property or services that are subject to sales and use tax if a “related member” (other than a common carrier acting in its capacity as such) that has substantial nexus in Georgia (1) sells a similar line of products as the person and does so under the same or a similar business name; or (2) uses trademarks, service marks, or trade names in Georgia that are the same or substantially similar to those used by the person. In this context, a “related member” means a person, with respect to the taxpayer during all or any portion of the tax year (1) that is a related person, (2) that is a component member as defined under the Internal Revenue Code, (3) to or from whom there would be required an attribution of stock ownership under the Internal Revenue Code, or (4) despite the form of its organization, has the same relationship to the taxpayer as a person described in (1) – (3) above. The presumption mentioned above that a person described in this paragraph qualifies as a dealer in Georgia is rebuttable by showing that the person does not have a physical presence in Georgia and that any in-state activities conducted on its behalf are not significantly associated with the person’s ability to establish and maintain a market in Georgia.
Effective October 1, 2012, the definition of “dealer” is also expanded to include any person who makes sales of tangible personal property or services that are subject to sales and use tax if any other person (other than a common carrier acting in its capacity as such) who has a substantial nexus in Georgia (1) delivers, installs, assembles, or performs maintenance services for the person’s customers within the state; (2) facilitates the person’s delivery of property to customers in Georgia by allowing the person’s customers to pick up property sold by the person at an office, distribution facility, warehouse, storage place, or similar place of business maintained by the person in Georgia; or (3) conducts any other activities in Georgia significantly associated with the person’s ability to establish and maintain a market in the state for the person’s sales. The presumption that such a person qualifies as a “dealer” in Georgia can be rebutted by showing that the person does not have a physical presence in the state and that any in-state activities conducted on its behalf are not significantly associated with the person’s ability to establish and maintain a market in the state.
Effective October 1, 2012, the definition of “dealer” for sales and use tax purposes expressly excludes a person whose only activity in Georgia is to engage in convention and trade show activities as described in IRC §513(d)(3)(A), so long as these activities are the dealer’s sole physical presence in Georgia and the dealer (including any of its representatives, agents, salespersons, canvassers, independent contractors, or solicitors) does not engage in the convention and trade show activities more than five days, in whole or in part, in Georgia during any 12-month period and did not derive more than $100,000 of net income from the activities in the state during the prior calendar year. Under IRC §513(d)(3)(A), “convention and trade show activity” means any activity of a kind traditionally conducted at conventions, annual meetings, or trade shows, including, but not limited to, any activity one of the purposes of which is to attract persons in an industry generally (without regard to membership in the sponsoring organization), as well as members of the public, to the show for the purpose of displaying industry products or to stimulate interest in, and demand for, industry products or services, or to educate persons engaged in the industry in the development of new products and services or new rules and regulations affecting the industry.
Amendment of “dealer” definition: Effective October 1, 2012, the definition of “dealer” under the sales and use tax laws is amended to mean a person who maintains or utilizes an office, distribution center, salesroom or sales office, warehouse, service enterprise, or any other place of business, whether owned by that person or any other person, other than a common carrier acting in its capacity as such. Previously, this part of the definition stated that a dealer maintains or has in Georgia (indirectly or through a subsidiary) an office, distribution center, salesroom or sales office, warehouse, service enterprise, or any other place of business.
Determinations as to “dealer” status: Effective October 1, 2012, any verbal or written (or express or implied) ruling, agreement, or contract, between a person and Georgia’s executive branch or any other state agency or department stating, agreeing, or ruling that a person is not a “dealer” required to collect sales and use tax in Georgia despite the presence of a warehouse, distribution center, or fulfillment center in the state that is owned or operated by the person or a related member is null and void unless specifically approved by a majority vote of each body of the General Assembly.
Sales Tax Incentives
The bill simplifies and revamps sales tax exemptions under the law for the manufacturing, mining, and agricultural industries. The bill also makes other changes pertaining to sales tax incentives, as detailed below.
Exemptions for those engaged in manufacturing, mining, publishing, other industries: Effective January 1, 2013, the legislation provides exemptions for any “manufacturer” engaged in the “manufacture of tangible personal property.” For purposes of these exemptions, “manufacturer” refers to those who are generally regarded as being manufacturers or those who are classified as manufacturers under the 2007 North American Industrial Classification System (NAICS) Sector 21 (Mining, Quarrying, and Oil and Gas Extraction), Sectors 31-33 (Manufacturing), Industry Code 22111 (Electric Power Generation), or Specific Code 511110 (Newspaper Publishers). The exemptions replace existing exemptions and apply to the sale, use, or storage of (1) machinery and equipment that is necessary and integral to the manufacture of tangible personal property, and (2) industrial materials and packaging supplies. A change in the way sales tax will be imposed on sales and uses of energy used in manufacturing is discussed further below under “Changes in the taxation of energy used in manufacturing.”
The terms “manufacture of tangible personal property” and “manufacturing” are both defined as a manufacturing operation, series of continuous manufacturing operations, or series of integrated manufacturing operations engaged in at or among a manufacturing plant or plants to change, process, transform, or convert industrial materials by physical or chemical means into articles of tangible personal property for sale, for promotional use, or for further manufacturing that have a different form, configuration, utility, composition, or character. “Industrial materials,” in turn, means materials for future processing, manufacture, or conversion into articles of tangible personal property for resale when the industrial materials become a component part of the finished product. “Packaging operation” means bagging, boxing, crating, canning, containerizing, cutting, measuring, weighing, wrapping, labeling, palletizing, or other similar processes necessary to prepare or package manufactured goods in a way that is suitable for the transport of work in process or the sale or delivery to customers as finished goods.
With respect to the exemption for machinery and equipment, “machinery” includes a machine and all of its components and any “repair or replacement part,” and “equipment” means tangible personal property, other than machinery, industrial materials, and “consumable supplies,” but including durable devices and apparatuses generally designed for long-term continuous or repetitive use. Examples of “equipment” include, but are not limited to, machinery, clothing, cones, cores, pallets, hand tools, tooling, molds, dies, waxes, jigs, patterns, conveyors, safety devices, and pollution control devices. The term includes components and repair or replacement parts. “Repair or replacement part” is defined as a part for any machinery or equipment that is necessary and integral to the manufacture of tangible personal property. “Consumable supplies” means tangible personal property (other than machinery, equipment, and industrial materials) that is consumed or expended during the manufacture of tangible personal property.
Changes in the taxation of energy used in manufacturing: Effective January 1, 2013, a four-year phaseout takes effect with regard to the imposition of sales and use tax on the sale, use, storage, or consumption of energy that is necessary and integral to the manufacture of tangible personal property at a manufacturing plant in Georgia. Currently under the law, an exemption applies to the sale of electricity to a manufacturer located in Georgia used directly in the manufacture of a product if the direct cost of the electricity exceeds 50% of the cost of all materials, including electricity, used directly in the product. The phaseout schedule is as follows:
– From January 1, 2013, through December 31, 2013, a 25% exemption from the 4% state sales and use tax rate and any 1% local sales and use tax (other than any 1% educational local option sales and use tax).
– From January 1, 2014, through December 31, 2014, the above 25% exemption increases to 50%.
– From January 1, 2015, through December 31, 2015, the exemption increases to 75%.
– On January 1, 2016, the exemption increases to 100%.
For those services regularly billed on a monthly basis, the beginning of the phaseout will apply to services billed on or after January 1, 2013. For purposes of the phaseout, “energy” means natural or artificial gas, oil, gasoline, electricity, solid fuel, wood, waste, ice, steam, water, and other materials necessary and integral for heat, light, power, refrigeration, climate control, processing, or any other use in any phase of the manufacture of tangible personal property. “Energy” does not include energy purchased by a manufacturer primarily engaged in producing electricity for resale. Those qualifying for a full or a partial exemption under the phaseout schedule must certify to the seller that the exemption applies. A seller is relieved from the burden of proving a purchaser’s qualification for the exemption if the seller obtains an exemption certificate from the purchaser certifying qualification.
The four-year phaseout described above will be offset by the four-year phase-in of an excise tax on the sale or use of energy that municipalities, and newly created “special districts,” will be authorized to levy if such sales or uses would be taxable if not for the phaseout described above. The special districts will be 159 in number and will consist of the geographical boundaries of each county, except for any municipalities that levy the new excise tax. The phase-in schedule is as follows:
– From January 1, 2013, through December 31, 2013, the excise tax rate will equal 25% of the total local sales and use tax in effect in the special district that would be collected if not for the phaseout described above. In this context, “local sales and use tax” means county special purposes local option taxes, joint county and municipal taxes, homestead option taxes, water and sewer projects and costs taxes, and those sales and use taxes levied for purposes of a metropolitan system of public transportation.
– From January 1, 2014, through December 31, 2014, the 25% rate increases to 50%.
– From January 1, 2015, through December 31, 2015, the 50% rate increases to 75%.
– On January 1, 2016, the 75% rate increases to 100%. The maximum rate for the tax on this date is 2% as a general rule, or 3% if the municipality also imposes water and sewer projects and costs sales and use taxes. If the total rate of local sales and use taxes in effect in a special district decreases from 2% to 1% or increases from 1% to 2%, the rate of the excise tax will likewise be reduced or increased at the same time. The excise tax is capped at 2%.
Dealers collecting the excise tax must remit it to the governing authority imposing the tax. For those services regularly billed on a monthly basis, the excise tax applies to services billed on or after the effective date of the tax.
Agricultural exemptions: Effective January 1, 2013, an exemption from sales and use tax applies to sales to (and uses by) a qualified agriculture producer of agricultural production inputs, energy used in agriculture, and agricultural machinery and equipment. This exemption replaces current agricultural exemptions. A “qualified agricultural producer” is defined as a person or entity that meets one of the following criteria: (1) owning or leasing agricultural land or other real property from which $2,500 or more of agricultural products were produced and sold during the year; (2) being in the business of providing for-hire custom agricultural services; (3) owning land that qualifies for taxation as bona fide conservation use property under the Georgia Forest Land Protection Act; (4) being in the business of producing long-term agricultural products from which there might not be annual income (such as timber or pecans), but for which the applicant can demonstrate that at least $2,500 in annual sales will occur in the future; or (5) being able to show active engagement in the production of agricultural products or having (currently or in the future) sufficient volume to generate at least $2,500 in annual sales. Persons and entities meeting any of these criteria can apply to the state’s commissioner of agriculture and request an agricultural sales and use tax exemption certificate bearing an exemption number and a wallet-sized card containing the same information.
Exemption for projects of regional significance: As of January 1, 2012, a sales tax exemption applies to construction material purchases made between January 1, 2012, and June 30, 2014, for use in the construction of a competitive project of regional significance. A “competitive project of regional significance” means the location or expansion of some or all of a business enterprise’s operations in Georgia where the state’s commissioner of economic development determines that the project would have a significant regional impact. Instructive regulations will be promulgated to provide further guidance as to this definition.
Jet fuel for qualifying airlines: Effective July 1, 2012, the legislation extends and modifies the exemption for the sale or use of jet fuel to or by a qualifying airline at a qualifying airport. Specifically, from July 1, 2012, forward, the sale or use of jet fuel to or by a qualifying airline at a qualifying airport is exempt from 1% of the 4% state sales and use tax. Previously, the exemption was scheduled to sunset on June 30, 2013, and applied to “state sales and use tax.”
Film industry exemption: Effective July 1, 2012, the sales tax exemption for purchases and leases by the film production industry of production equipment and production services is eliminated.
Sales Tax Holidays
For 2012 and 2013, the legislation re-enacts (with price modifications) sales tax holidays last held in 2009 for back-to-school items, energy-efficient products, and water-efficient products. Specifically, a holiday takes place this year on August 10-11, 2012 (August 9-10, 2013) that applies to purchases of (1) clothing and footwear with a sales price of $100 or less per article or pair, excluding accessories; (2) single purchases for noncommercial use of $1,000 or less of personal computers and related accessories; and (3) noncommercial purchases of general school supplies priced at up to $20 per item, including children’s books and books listed on school reading lists for pre-kindergarten – 12th grade. The sales tax holiday for purchases of energy-efficient and water-efficient products purchased for noncommercial use having a sales price of $1,500 or less per product takes place this year on October 5-7, 2012, and next year on October 4-6, 2013.
The term “energy efficient product” under Georgia law includes any dishwashers, clothes washers, air conditioners, ceiling fans, fluorescent light bulbs, dehumidifiers, programmable thermostats, refrigerators, doors, or windows that have been designated by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy as meeting or exceeding energy-saving efficiency requirements, or that have been designated as meeting or exceeding Energy Star requirements. “Water efficient product” includes any product used for the conservation or efficient use of water that has been designated by the EPA as meeting or exceeding water-saving efficiency requirements or that has been designated as meeting WaterSense requirements.
H.B. 386, Laws 2012, effective as noted; Press Release, Gov. Nathan Deal, April 19, 2012