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By Altus Group | January 26, 2017

If So, Make Sure You’re Taking Full Advantage Of The State’s Manufacturing Exemptions From Sales And Use Tax.

Georgia, like many states, provides exemptions from sales and use tax for manufacturing-related purchases. Exemptions are available for purchases and leases of machinery and equipment used in various situations, including the following:

  1. New or expanded warehouse or distribution facility
  2. Pollution control
  3. Any machinery and equipment that is necessary and integral to the manufacturing of tangible personal property

However, for each of the categories above, certain criteria must be met in order for the items purchased/leased to qualify for the State’s exemption.

For example, the exemption related to a new or expanded warehouse or distribution facility only applies to an expansion of an existing facility or part of the construction of a new facility if the cost of the construction is $5 million or more [Ga. Code Ann. § 48-8-3(34.1)(A)]. Georgia also provides a partial list of examples of machinery and equipment that are generally considered “necessary and integral” to the manufacturing of tangible personal property, and those that are not. Even if an item is included on the list of qualifying machinery and equipment, it will not qualify for the exemption if it’s not actually used in the manner described in Georgia’s criteria.

Not all taxpayers are allowed to claim exemptions though. Only those whose NAICS codes fall within specified manufacturing-related categories, or if the company is generally regarded as being a manufacturer. The State recently issued a ruling determining that a Taxpayer who provides dismantling/demolition services which involve removing obsolete scrap from customer sites and preparing the scrap for sale to steel mills or local scrap yards does not meet Georgia’s definition of a “manufacturer” because the Taxpayer is not classified as a “manufacturer” under its NAICS code. Therefore, despite the fact that the majority of the Taxpayer’s income is derived from procuring a material, transforming it, and then selling it, the Taxpayer cannot qualify for any of the State’s manufacturing exemptions from sales and use tax.

Although manufacturing exemptions may seem easy to manage for some taxpayers, the misapplication of such exemptions can lead to significant exposure. On the other hand, if you’re manufacturing in Georgia, you could be missing an opportunity to recover some overpaid sales and use taxes if you’re not utilizing the State’s exemptions to your advantage.


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