Current through Rules and Regulations filed through March 20, 2024
(1) Purpose. This Rule explains
the application of sales and use tax to tangible personal property purchased
under terms of resale that is subsequently withdrawn from inventory by a
retailer, dealer, manufacturer, processor, or converter for any use other than
retention, demonstration, or display while holding the property for sale in the
regular course of business.
(2) Definitions. For purposes of
this Rule, the following definitions and explanations of terms shall apply:
(a) "Contractor" means any person who orally,
in writing, or by purchase order contracts to furnish tangible personal
property and to perform services under the contract.
(b) "Cost price" means the actual cost of
articles of tangible personal property without any deductions for the cost of
materials used, labor costs, service costs, transportation charges, or any
other expenses of any kind.
(c)
"Dealer" means any person who is a dealer as defined in O.C.G.A. §
48-8-2(3), including but not limited to retailers, manufacturers, wholesalers, and
distributors.
(d) "Fair rental
value" means the amount a dealer would have charged for an arm's length, bona
fide rental or lease of tangible personal property in the regular course of
business at the time such property was withdrawn from inventory.
(e) "Fair market value," for purposes of
self-produced property withdrawn from inventory by manufacturers, processors,
or converters, is the amount a knowledgeable buyer would pay for the property
and a willing seller would accept for the property at an arm's length, bona
fide sale. In other words,"fair market value" is the sales price at which
property would have been offered for sale in the regular course of business at
the time it was withdrawn from inventory. Discounts applied in the regular
course of business may be deducted when calculating fair market value. When
property is offered for sale at varying prices based on volume discounts,
close-out pricing, or other factors, fair market value may be calculated using
the average sales price at which the property was offered for sale over the 12
month period before the property is withdrawn. With respect to property when no
ready market exists for its sale, taxpayers or the Department may provide
additional information that is reasonable, relevant and useful to the
determination of fair market value.
(f) "Industrial materials" means materials
that are purchased for future processing, manufacture, or conversion into
articles of tangible personal property for resale when the materials become a
component part of the finished product. The term also means materials that are
coated upon or impregnated into the product at any stage of its processing,
manufacture, or conversion, even though such materials do not remain a
component part of the finished product for sale. The term "industrial
materials" includes "raw materials".
(g) "Retailer" means every person making
sales at retail or for distribution, use, consumption, or storage for use or
consumption in this state.
(h)
"Retention, demonstration, or display" means holding property in inventory for
sale in the regular course of business, and demonstrating or displaying the
property's characteristics while holding the property in resale inventory. The
term does not include the use of such property in the day-to-day operations of
a business; the personal use of such property by employees or others; or the
use of such property where the business lists the property as an asset other
than inventory on its books and records, whether or not the listed item is
expensed or capitalized, even if the capitalization is recaptured if the item
is subsequently sold. Any use other than retention, demonstration, or display
while holding the property for sale in the regular course of business
constitutes a taxable use of the property.
(i) "Sales price," for purposes of
self-produced property withdrawn from inventory by manufacturers, processors,
or converters, means the total amount for which tangible personal property is
sold in the regular course of business without any deduction from the total
amount for the cost of the property sold, the cost of materials used, labor or
service costs, losses, or any other expenses of any kind. The sales price is
deemed to be the price at which purchasers and sellers, both having reasonable
knowledge of the property and being under no compulsion, are willing to do
business (i.e., the amount a knowledgeable purchaser would pay for the property
and a willing seller would accept for the property in an arm's length, bona
fide sale).
(j) "Taxable purpose"
means any use other than retention, demonstration, or display while holding
property for sale in the regular course of business. The term does not include
withdrawals of property from inventory for sale or for further manufacturing or
processing.
(3)
General Rule.
(a) A person who
purchases tangible personal property under terms of resale without payment of
sales and use tax and holds such property for sale at retail in the regular
course of business is liable for use tax on the property if such property is
subsequently withdrawn from resale inventory and used for a taxable
purpose.
(b) Use tax must be
accrued and remitted for the reporting period in which the property is
withdrawn from inventory. Local use tax should be accrued in the jurisdiction
in which the property is withdrawn from resale inventory. If such property is
subsequently used in another local jurisdiction with a higher rate of local
tax, the taxpayer must also accrue and remit an additional amount of local use
tax equal to the difference between the higher rate in the jurisdiction where
the property is used and the lower rate in the jurisdiction where the property
was initially withdrawn from inventory.
(4)
Withdrawals of Purchased
Inventory.
(a) A dealer who purchases
tangible personal property under terms of resale without payment of sales and
use tax is liable for use tax on the cost price of such property if it is
withdrawn from inventory and used for a taxable purpose.
(b) If the sole use of property purchased
under terms of resale, other than retention, demonstration, or display in the
regular course of business, is the rental or lease of the property while
holding it for sale or the use of the property to transport persons for hire
while holding the property for sale, the dealer may elect to collect sales tax
on the charges for the rental or transportation rather than accruing and
remitting use tax on the cost price of the property.
(c) Notwithstanding any other provision in
Rule
560-12-2-.09, a dealer who provides
property to its sales representatives at no cost is liable for use tax on the
cost price of the property. Because the property has been permanently given to
the sales representative, the dealer is no longer holding the property in its
inventory for sale in the regular course of business. It is immaterial whether
the property is used by the sales representative only for demonstration and
display purposes or for other purposes in addition to demonstration and
display.
(d) A dealer who withdraws
property from its untaxed resale inventory for a taxable purpose and then
subsequently sells that property at retail must first accrue and remit use tax
on the withdrawal of the property from inventory, and then collect and remit
sales tax on any subsequent taxable sale of the property at retail. The initial
withdrawal from inventory and the subsequent taxable sale at retail are two
separate taxable events.
(e)
Purchases of samples by a dealer from a manufacturer are treated as follows:
(i) When a dealer purchases samples from a
manufacturer or distributor, and the manufacturer or distributor does not
collect sales tax on the sales price of the samples, the dealer is liable for
use tax on the cost price of the samples (unless they were purchased under
terms of resale).
(ii) When a
dealer purchases samples under terms of resale and subsequently withdraws them
from its untaxed resale inventory and provides them to a customer without
charge, the dealer is liable for use tax on the cost price of the sample upon
its withdrawal from inventory.
(iii) A dealer who purchases samples to
distribute without charge is not entitled to purchase such samples under terms
of resale. The dealer is liable for use tax on the cost price of the samples if
the vendor does not collect sales tax on the invoice. If the dealer
subsequently sells the samples at retail, the dealer must collect and remit
sales tax on the sales price of the samples unless the sale is otherwise
exempt.
(f) If purchased
tangible personal property is withdrawn from inventory outside of Georgia for
use or consumption in Georgia and is then used and consumed in Georgia, Georgia
use tax is due based on the cost price of the tangible personal property
because the withdrawal outside of Georgia constitutes a deemed "retail sale"
and the subsequent use or consumption of the tangible personal property
occurred within Georgia. However, a credit will be allowed against the Georgia
use tax for any tax legally due and paid in the other state on the withdrawal
occurring in that state (provided the other state reciprocates the
credit).
(g) If purchased tangible
personal property is transferred from inventory in Georgia to an inventory
outside of Georgia where it will continue to be held for sale, then no Georgia
use tax is due if any tangible personal property is subsequently withdrawn,
used, or consumed outside of Georgia since the property remained in inventory
no withdrawal, use or consumption ("retail sale") of the tangible personal
property occurred in Georgia.
(h)
If purchased tangible personal property is transferred from inventory outside
of Georgia to an inventory in Georgia where it will continue to be held for
sale, then no Georgia sales or use tax is due until the tangible personal
property is either sold at retail in Georgia or is withdrawn, used or consumed
("retail sale") in Georgia.
(i)
Examples.
(i) An office supply store
purchases 200 rolls of cash register tapes under terms of resale without
payment of sales and use tax. Later, an employee removes 5 rolls of cash
register tape from inventory to use in the store's registers. The office supply
store is liable for use tax on the cost price of the 5 rolls of cash register
tape.
(ii) A clothing store
provides free clothing to its employees, who are required to wear the clothing
while at work. The company is liable for use tax on the cost price of the
clothing provided to the employees because it is no longer holding the clothing
for sale in the regular course of business. It is immaterial whether the
clothing is used by the sales representatives for demonstration and display
purposes because the employees are free to use the property for other purposes
in addition to demonstration and display.
(iii) An appliance store removes a microwave
from its resale inventory and uses it in its employee lounge. The appliance
store purchased the microwave under terms of resale without payment of sales or
use tax at a cost price of $50.00. Because the appliance store removed the
microwave from its resale inventory and used it for its own purposes, the
appliance store is liable for use tax on the $50.00 cost price of the
microwave. If the appliance store later sells the microwave as a used
appliance, it will be required to collect sales tax from the purchaser on the
sales price of the microwave unless the sale is otherwise exempt. The
withdrawal from inventory and the subsequent sale at retail are two separate
taxable events.
(iv) A paint
manufacturer purchases paint cards that depict its selection of available paint
colors without payment of sales and use tax. The manufacturer provides the
paint cards to dealers at no charge. The manufacturer is liable for use tax on
the cost price of the paint cards. If the manufacturer had self-produced the
paint cards instead of purchasing them, the manufacturer would have been liable
for use tax on fair market value of the cards.
(v) A paint store removes a color wheel from
its resale inventory and provides it to its in-store decorator for use in
custom design projects for customers. The paint store purchased the color wheel
under terms of resale without payment of sales or use tax at a cost price of
$5.00. Because the paint store removed the color wheel from its resale
inventory and used it for its own purposes, the paint store is liable for use
tax on the $5.00 cost price of the color wheel. If the paint store later sells
the color wheel at retail, it will be required to collect sales tax from the
purchaser on the sales price of the color wheel unless the sale is otherwise
exempt. The withdrawal from inventory and the subsequent sale at retail are two
separate taxable events.
(5)
Withdrawals of Self Produced
Inventory.
(a) A manufacturer,
processor, or converter who purchases industrial materials without payment of
sales and use tax is liable for use tax on the fair market value of any
property manufactured, processed or converted for sale to third parties if such
property is withdrawn from inventory and used for any taxable
purpose.
(b) A manufacturer,
processor, or converter who purchases industrial materials without payment of
tax is liable for use tax on the cost price of the industrial materials if the
industrial materials are withdrawn from inventory and used for any taxable
purpose.
(c) Manufacturers,
processors, or converters are liable for use tax on the fair market value of
samples of tangible personal property distributed without charge. The samples
are deemed to be withdrawn from inventory and used as promotional materials.
Manufacturers, processors, or converters who make taxable sales of samples to
dealers must collect sales tax on the sales price of the samples.
(d) A manufacturer, processor, or converter
who provides property to its sales representatives at no cost is liable for use
tax on the fair market value of the property if the property will not be
returned to the dealer's resale inventory. Because the property has been
permanently given to the sales representative, the manufacturer, processor, or
converter is no longer holding the property in its inventory for sale in the
regular course of business. It is immaterial whether the property is used by
the sales representatives only for demonstration and display purposes or for
other purposes in addition to demonstration and display.
(e) Contractors that purchase property for
use during the performance of services under a contract without payment of
sales tax are liable for use tax on the cost price of such property, even if it
is subsequently manufactured, processed or converted before it is used during
the performance of services under a contract. Because the property is not
manufactured, processed or converted for retail sale to a third party, the
appropriate measure of tax is the cost price rather than the fair market
value.
(f) If self-produced
tangible personal property is withdrawn from inventory outside of Georgia for
use or consumption in Georgia and is then used and consumed in Georgia, Georgia
use tax is due based on the fair market value of the tangible personal property
because the withdrawal outside of Georgia constitutes a deemed "retail sale"
and the subsequent use or consumption of the tangible personal property
occurred within Georgia. However, a credit will be allowed against the Georgia
use tax for any tax legally due and paid in the other state on the withdrawal
occurring in that state (provided the other state reciprocates the
credit).
(g) If self-produced
tangible personal property is transferred from inventory in Georgia to an
inventory outside of Georgia where it will continue to be held for sale, then
no Georgia use tax is due if any tangible personal property is subsequently
withdrawn, used, or consumed outside of Georgia since the property remained in
inventory and no withdrawal, use or consumption ("retail sale") of the tangible
personal property occurred in Georgia.
(h) If self-produced tangible personal
property is transferred from inventory outside of Georgia to an inventory in
Georgia where it will continue to be held for sale, then no Georgia sales or
use tax is due until the tangible personal property is either sold at retail in
Georgia or is withdrawn, used or consumed ("retail sale") in Georgia.
(i) Examples.
(i) A manufacturer produces and sells vinyl
siding products for sale to wholesalers. The manufacturer also produces vinyl
siding display pieces (samples) that are provided at no cost to wholesalers for
marketing purposes. The display pieces are made from the same industrial
materials as the siding products, so the manufacturer purchases all of its
industrial materials without payment of sales or use tax. When the manufacturer
provides the display pieces to the wholesalers at no cost, the manufacturer is
liable for use tax on the fair market value of the display pieces.
(ii) A furniture manufacturer purchases
lumber without payment of sales and use tax under terms of resale. The lumber
is an industrial material that is regularly purchased and incorporated into the
manufacturer's inventory of finished tangible personal property for sale. The
manufacturer uses some of the lumber to repair a wall in its manufacturing
facility. The manufacturer is liable for use tax on the cost price of the
lumber withdrawn from inventory because only purchased industrial materials,
rather than self-produced finished goods, were withdrawn from
inventory.
(iii) A company
manufactures tools in Georgia. The tools are customarily offered for sale by
the manufacturer at $20.00 each. To encourage home improvement stores to carry
its tools, the manufacturer withdraws a number of finished tools from its
resale inventory and provides them at no charge to the home improvement store's
managers. The tools are shipped to store managers in Georgia. The manufacturer
is liable for use tax on the fair market value ($20.00) of each tool given
away. Further, if the tools are shipped to store managers outside Georgia, the
manufacturer is still liable for use tax on the fair market value ($20.00) of
each tool given away. When a taxpayer purchases property under terms of resale
and then withdraws the property from its resale inventory for any purpose other
than retention, demonstration, or display, the taxpayer incurs a use tax
liability. Therefore, in this situation, the tool company is liable for Georgia
use tax regardless of where the product is shipped because the use occurs in
Georgia when the tool is removed from resale inventory in Georgia. Many states
will allow a credit against sales and use tax due for any tax legally due and
paid in Georgia.
(6)
Withdrawals of Inventory Held for
Rental or Lease.
(a) A dealer who
purchases property under terms of resale and holds it for rental or lease, and
who later withdraws such property from inventory and uses it for any taxable
purpose, is liable for use tax on the fair rental value of the
property.
(b) A dealer who
periodically withdraws property from inventory for taxable purposes may elect
at any time to pay sales or use tax on the original cost price of property held
for rental or lease, and no further sales and use tax liability will be
incurred on the dealer's subsequent use of the withdrawn property. In other
words, the dealer is liable for use tax based on either (1) the amount that
would have been received as a rental fee or (2) the full purchase price of the
property originally purchased for rental or leasing. However, a dealer who
elects to pay use tax on the original cost price of property, after paying use
tax on prior withdrawals, is not entitled to a credit for use tax already paid
on the prior withdrawals.
(c) A
manufacturer, processor, or converter who rents or leases self-produced
property while holding it for sale in the regular course of business may elect
to treat the fair rental value, rather than the fair market value, as its sale
price. The subsequent sale at retail of property held for rental or lease is
taxable based upon the sales price of the property.
(d) Examples.
(i) A dealer purchases a backhoe for purposes
of renting or leasing it to customers on a daily basis. The dealer purchases
the backhoe without payment of sales or use tax under terms of resale. The
dealer occasionally rents the backhoe with an operator (who exclusively
controls the backhoe's operation) or uses the backhoe to perform a service. The
backhoe is returned to the rental inventory after each "use" by the dealer. The
dealer must pay either a use tax on the fair rental value of the periods the
dealer used the backhoe or on the cost price of the backhoe held for rental or
lease purposes in the regular course of business. If the dealer pays use tax on
the cost price of the backhoe, it will not be liable for use tax on subsequent
withdrawals from inventory.
(ii) A
motor vehicle rental company purchases automobiles for the purpose of renting
them to customers. The rental company purchases the motor vehicles without the
payment of sales and use tax under terms of resale. The rental company
withdraws a motor vehicle from its resale inventory to be used exclusively as a
company vehicle. The rental company is liable for use tax on the cost price of
the vehicle. The company cannot elect to tax the fair rental value of the
withdrawal, because the vehicle is not returned to the company's resale
inventory after each use.
(7)
Withdrawals of Inventory by Service
Providers.
(a) Service providers are
dealers who, in addition to providing personal or professional services, may
also sell tangible personal property at retail. Special rules apply to service
providers because they may sell the same property at retail that they use
during the provision of personal or professional services.
(b) A service provider who purchases tangible
personal property, a part of which may be sold at retail and a part of which
may be used in the provision of services, may purchase such property without
payment of sales tax under terms of resale. To purchase property without
payment of sales tax, a service provider must furnish its vendors with a
properly executed Certificate of Exemption (Form ST-5).
(c) Replacement parts, materials, and
supplies used or consumed by repairmen in repairing tangible personal property
belonging to others are taxable either to the service provider or to the owner
of the property being repaired, as follows:
(i) If a service provider performing repair
work does not separately state, itemize or segregate at a fixed or retail price
any tangible personal property provided along with the service, the sales tax
will apply to the total charge for the tangible personal property and
labor.
(ii) If a service provider
performing repair work does separately state, itemize, or segregate at a fixed
or retail price any tangible personal property provided, stating separately the
amount for labor, the tax will apply only to the retail sales price of the
parts, materials and supplies listed and itemized. The separately stated charge
for labor is exempt from sales and use tax.
(d) Service providers are deemed to be the
consumers of certain tangible personal property used or consumed during the
provision of a service if the service provider does not separately charge for
such property. This category includes property that loses its identity when
used and consumed during the provision of services and property that is deemed
to be an inconsequential element of the service transaction. If such property
was purchased under terms of resale, the service provider must accrue and remit
use tax because the property is deemed to be withdrawn from inventory for the
service provider's use. The service provider must accrue and remit use tax on
the cost price of any property withdrawn from inventory.
(e) The withdrawal from inventory of property
used to repair an item under a manufacturer's or retail dealer's warranty that
was included in the sales price of the item does not constitute a taxable use
by the person performing the repair work. In other words, the manufacturer or
dealer is not liable for use tax on the withdrawal of parts or materials used
or consumed when making such a repair. The repair parts are deemed to have been
part of the original sales price of the warranty accompanying the
property.
(f) The withdrawal from
inventory of property used to repair an item under an optional or extended
warranty or maintenance agreement that was not included in the sales price of
the item constitutes a taxable use by the person performing the repair work.
When a manufacturer or dealer withdraws property from inventory to make repairs
under the optional or extended warranty or maintenance agreement, the
manufacturer or dealer is liable for use tax on the cost price of the property
used or consumed if such property was purchased under terms of resale. If the
manufacturer or dealer makes a charge for the property used in the repair, the
use of the property is not a withdrawal from inventory for the manufacturer's
or dealer's own use. Instead, the sale is the taxable event and the
manufacturer or dealer must charge sales tax to the purchaser as with any other
retail sale. In this case, the property used in the repair would be taxable and
any separately stated labor charges would be exempt.
(g) If a service provider regularly purchases
taxable tangible personal property from sellers who do not collect Georgia
sales tax, the service provider must register as a dealer and report and remit
Georgia use tax to the Department.
(h) Examples.
(i) An automobile dealer sells an automobile
to a purchaser for $10,000, which includes as part of the purchase price a
manufacturer's warranty. In addition, the dealer sells the purchaser an
optional extended warranty for an additional $500. The purchaser owes sales tax
on the sales price of the automobile, which includes the cost of the
manufacturer's warranty. However, the purchaser is not liable for sales tax on
the $500 charge for the optional extended warranty if it is separately stated
on the invoice. At a later date, the automobile is repaired under the
manufacturer's warranty. Neither the purchaser nor the dealer is liable for tax
on the parts used in the repair under the manufacturer's warranty. These parts
are deemed to have been included in the sales price of the automobile. However,
if the automobile is later repaired under the optional extended warranty, the
dealer will be liable for use tax on any parts used in the repair under the
optional extended warranty. If a third party is billed for the repairs, then
the covered items are subject to sales tax as in any other repair
transaction.
(ii) An upholsterer
agrees to reupholster a customer's sofa. During the provision of the service,
the upholsterer uses fabric, padding, and staples. The upholsterer's invoice
separately states the charges for the fabric and padding, which were purchased
under terms of resale. The upholsterer's invoice does not contain a separate
charge for the staples. The upholsterer must collect sales tax from the
customer on the sales price of the fabric and padding. If the staples were
purchased under terms of resale, the upholsterer is liable for use tax on the
cost price of the staples.
(iii) A
hunting preserve purchases live game birds, ammunition, and skeet under terms
of resale by providing a properly executed Certificate of Exemption (Form ST-5)
to the dealer. The hunting preserve allows its employees to hunt without charge
one day per month. The hunting preserve is liable for use tax on the cost price
of the live game birds, ammunition, and skeet used and consumed by the
employees. See Ga. Comp. R. & Regs. §
560-12-2-.113 regarding the
applicability of Georgia sales and use tax to purchases by hunting preserves
and clubs.
(8)
Carpet Samples.
(a) Definitions. For the purposes of this
paragraph, the following definitions and explanations of terms shall apply:
(i) "Carpet sample" means any piece of carpet
that is provided at no cost by a carpet manufacturer or distributor to a dealer
or any other person for demonstration or display purposes. The term "carpet
sample" includes custom samples such as strike-offs and mock-ups. The term
"carpet sample" does not include paper carpet samples.
(ii) "Manufactured exclusively for commercial
use" refers to the manufacture of carpet that is specifically designed for
business or industrial use rather than for private or residential use.
Commercial uses include uses in office buildings, hotels, restaurants, malls,
hospitals, and other business locations. Carpet manufactured for private,
residential, or other uses shall not be considered to be manufactured
exclusively for commercial use.
(iii) "Total raw material cost," as used in
connection with carpet samples, means the manufactured cost of carpet samples,
including supplies used to manufacture carpet samples such as binding,
grommets, and similar items; display devices such as racks and binders; and
inbound freight charges. The term "total raw material cost" does not mean or
include labor or overhead for assembling or producing samples from finished
carpet and does not mean or include outbound freight charges which may be
charged to the expense account for carpet samples.
(b) General Rule. When a manufacturer or
distributor provides carpet samples without charge to a dealer or any other
person, the carpet samples are deemed to be withdrawn from the manufacturer's
inventory and used for promotional purposes. Therefore, the manufacturer is
liable for Georgia use tax. The measure of tax for carpet samples is prescribed
by statute and differs from the measure of tax for other types of property
withdrawn from inventory. When a manufacturer sells carpet samples, the
manufacturer must collect sales tax from the purchaser unless the sale is
otherwise exempt.
(c) Measure of
Tax. For purposes of determining the measure of tax for carpet samples, the
fair market value of any carpet sample shall be equal to 21.9 percent of the
total raw material cost of the sample, except that the fair market value of a
sample of carpet that is manufactured exclusively for commercial use shall be
equal to 1 percent of the total raw material cost of the sample.
(d) If a manufacturer does not collect sales
tax at the time of sale, dealers who purchase carpet samples for use in
promoting sales of carpeting must accrue use tax based upon the cost price of
the carpet samples. A dealer may not purchase carpet samples under terms of
resale unless it actually intends to sell the carpet samples in the regular
course of business. A dealer who resells carpet samples is required to collect
sales tax from its purchasers.
(e)
Example. A dealer purchases carpet samples for promotional purchases. When
those samples become obsolete, the dealer sells them to customers for use as
throw rugs. In this situation, the dealer must pay sales tax when it purchases
the samples. Then, when it sells the obsolete samples, it must collect sales
tax on the sales price of the carpet samples. The dealer may not issue a resale
exemption certificate upon the purchase of the samples. Nor may it claim a
credit for any sales or use tax previously paid or accrued. The initial
purchase was not a purchase for resale because it was for the dealer's own use,
and the subsequent sale at retail was a separate taxable event.
(9) Aircraft Dealers.
See Ga. Comp. R. & Regs. §
560-12-2-.04 regarding the
applicability of Georgia sales and use tax to aircraft withdrawn from inventory
and used for any taxable purpose (such as for flight instruction and personal
and business use).
(10)
Automotive and Other Motor Vehicle Dealers. See Ga. Comp. R. & Regs.
§
560-12-2-.09 regarding the
applicability of Georgia sales and use tax to items withdrawn from inventory by
automotive and other motor vehicle dealers and used for any taxable purpose. To
the extent that Rule 560-12-1-.14 is inconsistent with Rule
560-12-2-.09 in any respect, Rule
560-12-2-.09 applies.
(11)
Donated Goods.
(a) Sales and use tax does not apply to the
use of prepared food and beverages which are donated to a qualified nonprofit
agency and which are used for hunger relief purposes pursuant to O.C.G.A.
§
48-8-3(57.2). Any
person making a donation of prepared food and beverages for the purpose
specified in this paragraph shall remit the tax imposed thereon unless the
person making use of such prepared food and beverages furnishes the person
making the donation with an exemption determination letter issued by the
commissioner certifying that the person making use of such food and beverages
is entitled to use the prepared food and beverages without paying the
tax.
(b) Sales and use tax does not
apply to the use of prepared food and beverages which are donated following a
natural disaster and which are used for disaster relief purposes pursuant to
O.C.G.A. §
48-8-3(57.3).
(c) Examples.
(i) A manufacturer produces and sells bread
at wholesale. The manufacturer donates 500 loaves of bread to a nonprofit
organization's company picnic. The bread manufacturer purchases the ingredients
to make the bread without payment of sales or use tax under terms of resale.
The bread is offered for sale by the manufacturer for two dollars per loaf. The
manufacturer is liable for use tax on the 500 loaves of bread at fair market
value, which is the normal sales price of two dollars per loaf. The bread is
used for purposes other than retention, demonstration, or display in the
regular course of the manufacturer's business. Furthermore, the exemption for
donations for hunger relief purposes is not applicable because the non-profit
is using the bread at a company picnic.
(ii) A wholesaler donates wine in sealed
containers to a qualified 501(c)(3) nonprofit civic organization to be
auctioned off for charity. The donation is a withdrawal from inventory and the
wholesaler is liable for use tax on the cost price of the wine withdrawn from
its untaxed resale inventory.
(12) Employee Meals. See Ga.
Comp. R. & Regs. §
560-12-2-.34 regarding the
applicability of Georgia sales and use tax to meals or beverages sold or
provided without charge to employees.
(13) Industrial Materials. A
manufacturer, processor, or converter who purchases industrial materials
without payment of sales tax is not liable for use tax when such materials are
withdrawn from inventory and used to process, manufacture, or convert articles
of tangible personal property for sale.
(14)
Pharmaceutical, Prescription Drug,
and Contact Lens Samples.
(a) Except
as provided for under subparagraph (14)(b), pharmaceutical and prescription
drug samples distributed without charge to physicians, dentists, clinics,
hospitals, or any other person or entity located in Georgia, by manufacturers
or distributors, whether manufactured inside or outside Georgia, are subject to
tax based on the fair market value of the samples or, if purchased, on the cost
price of the samples.
(b)
Prescription contact lenses distributed by the manufacturer to licensed
dispensers as free samples, which are not intended for resale and are labeled
as such, are not subject to Georgia sales and use tax pursuant to O.C.G.A.
§
48-8-3(47).
(15) Research and
Development; Quality Control Testing. A manufacturer, processor, or
converter who withdraws from inventory self-produced products for use in
research and development or quality control testing is liable for use tax on
the fair market value of the withdrawn property.
(16) Unusable or Unsalable
Property. When a taxpayer purchases property tax free under a resale
certificate and the property is subsequently deemed to be unsalable or unusable
in the regular course of business due to damage or imperfection, the unpaid
disposition of such property does not constitute a taxable withdrawal from
inventory. However, if a dealer sells property that is unusable or unsalable in
the regular course of business, it must collect sales tax from the purchaser on
the sales price of the unusable or unsalable property unless the sale is
otherwise exempt. For example, a manufacturer or dealer that sells waste or
by-products to a recycler must collect sales tax on the sales price of the
waste or by-products unless the sale is otherwise exempt. If, however, the
manufacturer simply disposes of such property without a sale, there is no
taxable event.
(17) Stolen
Property. When a taxpayer purchases property tax free under a resale
certificate and the property is subsequently stolen from the taxpayer, such an
involuntary withdrawal of the inventory does not constitute a taxable
use.
O.C.G.A. Secs.
48-2-12, 48-8-3, 48-8-39, 48-8-63.