Georgia has issued a guidance addressing whether a Taxpayer is selling tangible personal property or performing under a real property contract. In addition, the guidance also addresses whether the Taxpayer must collect sales tax on sales for resale.
The Taxpayer at issue in the guidance sells custom storage products for both new and preexisting homes. Taxpayer also sells to businesses occasionally. Specifically, the Taxpayer designs, manufactures, and installs these storage products. The Taxpayer does not sell products without installation.
The process begins with designers visiting the home and making measurements. Then the designer creates plans for each area of the home where storage solutions are wanted. Taxpayer’s engineers create 3-D “CAD” drawings of the storage units. Each design is custom to the respective home. After drawings are made, customer then approves the design and Taxpayer receives a 50% deposit. After the deposit is received, the CAD drawings are processed to the production department where the manufacturing process is started. After all the parts are custom cut to design specifications, Taxpayer’s installation team goes to the home and installs the custom storage products. Taxpayer plans to expand their business into selling custom storage closet/cabinets to resellers instead of contractors or end users.
Georgia imposes sales and use tax on the first instance of storage, use, distribution, or consumption of tangible personal property. The retail purchase or the first instance of storage, use, distribution, or consumption of tangible personal property in Georgia is subject to a four percent state tax for the purchase price plus any local tax for the specific jurisdiction. However, the tax imposed on the use, distribution, or consumption of the tangible personal property is generally only due if Georgia sales tax was not paid on the retail purchase of the particular property. The tax is subject to a credit for the taxes previously paid in another state.
Furthermore, contractors are end users and consumers of the tangible personal property they buy, use or consume in the performance of a contract and the property is not considered to be resold by the contractor. Contractors are liable for the tax on the purchase price of all tangible personal property used and consumed by them in the performance of contracts.
Based on the specific facts regarding Taxpayer’s business, they construct and install materials or items that are attached to real property and do not retain their identity as tangible personal property after installation. A resale certificate will relieve Taxpayer from the burden of proof on sales to resellers if Taxpayer obtains a resale certificate from a purchaser who (1) is engaged in the business of selling tangible personal property, (2) has a valid sales tax registration number at time of purchase with stated sales tax number on certificate, and (3) at time of purchase, seller has no reason to believe buyer does not intend to resell it in his or her regular course of business.
The Georgia Department of Revenue found that Taxpayer is the end user and consumer of the tangible personal property because they are a contracted to design, create, and install storage units. As a result, Taxpayer owes sales and use tax on everything they purchase to fulfill their contractual obligations within Georgia. Not only state, but also local taxes will apply to Taxpayer.
If Taxpayer makes sales for resale, Taxpayer can meet its burden of proving a sale is for resale and will not have to collect sales tax on those sales. Finally, the Taxpayer needs to obtain a Georgia Department of Revenue Form ST-5 from Taxpayer’s customer if the transaction occurs in Georgia.
To register to pay tax in Georgia, you will need to visit the Georgia Tax Center Website. If you would like to apply for a voluntary disclosure you can apply using the Voluntary Disclosure Application.
If you have erroneously remitted taxes on qualifying resale transactions for custom storage products, you may qualify for a tax refund. To apply for a tax refund with the Georgia Department of Revenue fill out the applicable application which can be found here ST-12 Claim for Refund. 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 also an adjunct professor and assistant editor to the American Bar Association’s The Sales and Use Tax Deskbook. For more information please call us at 888-966-8216.