The Georgia Department of Revenue has issued a guidance addressing whether a Taxpayer’s purchases of the certain items are subject to Georgia sales and use tax if the items are purchased for use or consumption aboard ships plying the high seas in intercoastal trade. Taxpayer, a marine transportation company providing inland and ocean towing services, sought a clarification on the meaning of the term “supplies” as used in the sales and use tax exemption set forth in O.C.G.A. §48-8-3(17).

Taxpayer conducts intercoastal trade and currently claims the exemption only for the fuel consumed by its boats. Meanwhile, Taxpayer has paid tax on all other items used and consumed aboard its boats, including the following: oil, filters, batteries, bulbs, groceries, gaskets, hoses, fasteners, replacement parts, tow lines, ropes, bridles, shackles, paint, safety items, and cleaning supplies. Such items are typically used within six months of purchase, at which point the items must be replenished or replaced.

The Department must “apply the fundamental rules of statutory construction that require us to construe [the] statute according to its terms, to give words their plain and ordinary meaning, and to avoid a construction that makes some language mere surplusage.” Exemptions from taxation are strictly construed, and an exemption cannot be granted unless the law clearly and distinctly shows that exemption was the plain and unambiguous intention of the General Assembly. Merriam-Webster provides that “supplies” means things (such as food, equipment, fuel, etc.) that are needed for a particular purpose and that will be used by a particular person or group. This definition indicates that supplies are usable and disposable items.

Georgia provides an exemption for the sale of replacement parts that are installed in and become an integral part of watercrafts that are purchased by common carriers. Because replacement parts installed in certain watercrafts are named expressly in a separate exemption, the legislature has distinguished between supplies and replacement parts. Therefore, the Department found it apparent that the legislature intended for supplies to include items that could be used up or consumed in the short-term, rather than replacement parts that are installed for more long-term, continuous use.

The wording of the relevant exemption, the definition of “supplies,” the context provided by another Georgia sales and use tax exemption, and the persuasive reasoning of the courts in another state founded the basis of the Department’s guidance. The Department found that the exemption is limited to fuel and supplies purchased “for use or consumption aboard ships plying the high seas.” The exemption does not include replacement parts or fixtures of a ship or vessel (nor does it include items that are used on land). Given the emphasis on short-term use and consumption of supplies, the Department read the subject exemption to include only items that generally are either entirely used or consumed after their initial use or those that have a short-term use or consumption life following their initial use.

Taxpayer detailed in its guidance request that it purchases items for its ships plying the high seas in intercoastal trade. It orders, replaces, and/or stocks, and subsequently and routinely reorders, replaces, and/or restocks certain of those items because they generally are disposable, consumable, expendable or temporary items used aboard ships. As long as these particular type of items are used or consumed aboard ships plying the high seas in intercoastal trade between Georgia ports and ports in other states, then these particular items, as included as part of a more general and broad list provided by Taxpayer, fall within the subject exemption.

It is important to note that the replacement parts described by Taxpayer are only subject to the exemption if they are short-term use items. Replacement parts that are installed in and become an integral part of a watercraft are not exempt under the exemption, but may, in the alternative, be exempt under O.C.G.A §48-8-3(33)(A). Qualifying supplies should be purchased without payment of tax using Form ST-7 (Certificate of Exemption: Ships Plying the High Seas).

If you have erroneously remitted taxes on similar supplies, you may qualify for a tax refund. To apply for a tax refund with the Georgia Department of Revenue, Taxpayers may submit the applicable Form ST-12. A qualified tax attorney can assist with the execution of the application and potential questions or concerns that may arise in the process.

Jeanette Moffa is an attorney who concentrates on state and local taxes at Moffa, Sutton, & Donnini, P.A. She is an executive council member of the American Bar Association Tax Section State and Local Tax Committee and the Florida Bar Tax Section. Ms. Moffa is an author of both the CCH’s Expert Treatise Library: Sales and Use Tax as well the ABA’s Sales and Use Tax Deskbook. In addition, her regular columns on state and local tax issues can be found in State Tax Notes and Actionline, a publication from the Florida Bar’s Real Property, Probate, and Trust Law Section. She also serves as assistant editor to the Sales and Use Tax Deskbook and Actionline. Ms. Moffa is a regular speaker at the American Bar Association Tax Section conferences, the Institute of Professionals in Taxation, the Florida Bar Tax Section, the Florida Bar Real Property, Probate, and Trust Law Section, and the FICPA. In her free time, she teaches as an adjunct professor at Broward College. She can be reached at JeanetteMoffa@MSDTaxLaw.com.

Posted in Georgia Sales Tax, Multi-state sales and use tax