Georgia has issued guidance LR SUT-2017-11 addressing whether market research reports and services are subject to Georgia sales tax. Specifically, the Department opined on the taxability of basic reports, online services, and custom studies. The Taxpayer requesting guidance is a market research company for the construction of new homes. Taxpayer has no offices in Georgia but has employees who come into Georgia to do market research and meet with clients. Every four months, Taxpayer sends auditors to each market for a few days to collect data on building permits. Data is collected by driving through subdivisions, visiting courthouses, getting home permit data and checking planning commission notes.

Taxpayer uses the data to create reports and then prints them and ships them to clients every four months. Taxpayer also provides online services to their clients, so they can login and download the reports as PDF as well as create reports themselves. Taxpayer also offers group consulting meetings to better explain the data and perform custom site-specific studies for clients as requested. These custom studies entail similar processes and data as the basic reports but usually are more detailed for one particular tract of land or subdivision. Custom studies are generally given to clients as a custom printed report and the clients usually receive multiple copies. A representative will also meet with the client to review the findings and will do consulting for the client for custom studies.

Georgia levies tax on the retail purchase, sale, storage, use or consumption of tangible personal property. A retail sale is any sale, lease, or rental for any purpose other than for resale, sublease, or subrent. A sale is any transfer of title and/or possession, exchange, barter, lease, or rental of any kind of tangible personal property for a consideration. Tangible personal property means personal property that can be seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses.

Unlike sales of tangible personal property, which are generally presumed taxable, sales of services are not taxable unless specifically designed as such. Georgia law provides that sales and use tax does not apply to “[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made.” However, if a transaction is in substance the sale of tangible personal property, this exemption will not apply.

In this case, the client is not paying for the professional skill and labor of Taxpayer but is instead purchasing a copy of a work that Taxpayer has already prepared. Like a book sold in a tangible form, the sale of the basic reports was deemed a taxable transaction, despite being the result of significant labor and skill. In this case, one lump sum is charged for the basic reports as well as web access and customer services. Since the basic reports are taxable, the entire transaction is subject to tax.

The sale of basic reports delivered solely in an electronic format (with no right to tangible personal property) is not subject to the tax. Likewise, in the event that Taxpayer separately charges for access to an on-line database where a client does not receive tangible personal property or the right to tangible personal property as part of the sale, such online services are not subject to Georgia sales and use tax.

Taxpayer charges for custom studies, which are not canned products made for general distribution but rather are products and services customized to one client’s specifications. While the Department considers charges for compiling and delivering records to be a retail sale of tangible personal property, appraisal and research services are typically considered professional services.

Clients who order custom studies primarily wish to purchase Taxpayer’s market research skill and labor. In these transactions, Taxpayer is responding to the exact needs of the client. Because the client cannot perform such services for himself due to the lack of equipment, time, or skill, the delivery of a custom report by the service provider is incidental to the individualized professional service. Thus, the transfer of custom professional reports does not render taxable the charges for the professional service of creating the reports. Any paper, compact disc, or other tangible medium used to convey the report to a client is deemed to be an inconsequential, incidental element of the sale of the custom market research services.

Taxpayer’s charges for basic reports are subject to sales tax when such reports are delivered to a Georgia client in a tangible format, such as a paper copy or a computer disc. For reports in disk or hard-copy format that Taxpayer sends to Georgia clients, Taxpayer must collect Georgia sales and use tax on the sales price of the lump sum charged to the client, even if the package includes incidental nontaxable products. Sales of basic reports delivered solely in an electronic medium, such as an emailed PDF, are not subject to sales tax because there is no transfer of tangible personal property or the right to such property.

Charges made for online services as described by Taxpayer and for accessing records stored in an online database are not subject to the tax because there is no transfer of tangible personal property. However, if these charges are bundled with the retail sale of tangible personal property, the entire lump sum charge is generally taxable.

Custom studies involve research and analysis done to the specification of a single client. Thus, charges for custom studies are charges either (1) for services not specifically enumerated as taxable or (2) for services that involve sales of tangible personal property as inconsequential elements for which no separate charges are made. Taxpayer is not required to collect Georgia sales and use tax on such charges, regardless of whether the custom report is delivered to the client electronically or in a tangible format.

If you have erroneously remitted taxes on similar services, you may qualify for a tax refund. To apply for a tax refund with the Georgia Department of Revenue, Taxpayers may submit the applicable 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 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.

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