There are many Georgia sales and use tax exemptions available to manufacturers operating within the state. In recent years, Georgia’s sales and use tax exemptions for manufacturers have broadened through the integrated plant theory with respect to manufacturing machinery and equipment. The integrated plant theory as it relates to Georgia sales and use tax exemptions has evolved in stages beginning in 2009.

Prior to the integrated plant theory, the Georgia sales and use tax manufacturing exemption statute [O.C.G.A. § 48-8-3] read as “machinery which is used directly in the manufacture of tangible personal property when the machinery is bought to replace or upgrade machinery in a manufacturing plant presently existing in this state and machinery components which are purchased to upgrade machinery used directly in the manufacture of tangible personal property in a manufacturing plant.” This statute has been revised to add the words “or equipment” after machinery to include items such as component parts that might not be considered “machinery”. The revised statute also eliminates the term “directly used” and adds “necessary and integral” to eliminate confusion on direct and indirect use in the manufacturing process. Furthermore, the revised statute allows for mobile or portable machinery and handheld tools. GA Regs. 560-12-2-.62 now reads “this Rule explains the sales and use tax exemptions in O.C.G.A § 48-8-3.2 for machinery and equipment necessary and integral to the manufacture of tangible personal property in a manufacturing plant, for repair and replacement parts associated with such machinery and equipment, and for industrial materials and packaging supplies.”

The integrated plant theory also phased in an exemption on energy used by manufacturers. Georgia Code 48-8-3.2[c](1) states “the sale, use, storage, or consumption of energy which is necessary and integral to the manufacture of tangible personal property at a manufacturing plant in this state shall be exempt from all sales and use taxation except for the sales and use tax for educational purpose.” The integrated plant theory has the exemption phased in over a four year period as follows:

(A) For the period commencing January 1, 2013, and concluding at the last moment of December 31, 2013, such sale, use, storage, or consumption of energy shall be exempt from an amount equal to 25 percent of the total amount of state sales and use tax that would be collected at the rate of 4 percent on such sale, use, storage, or consumption of energy and shall be exempt from an amount equal to 25 percent of the total amount of each local sales and use tax that would be collected at the rate of 1 percent on such sale, use, storage, or consumption of energy;

(B) For the period commencing January 1, 2014, and concluding at the last moment of December 31, 2014, such sale, use, storage, or consumption of energy shall be exempt from an amount equal to 50 percent of the total amount of state sales and use tax that would be collected at the rate of 4 percent on such sale, use, storage, or consumption of energy and shall be exempt from an amount equal to 50 percent of the total amount of each local sales and use tax that would be collected at the rate of 1 percent on such sale, use, storage, or consumption of energy;

(C) For the period commencing January 1, 2015, and concluding at the last moment of December 31, 2015, such sale, use, storage, or consumption of energy shall be exempt from an amount equal to 75 percent of the total amount of state sales and use tax that would be collected at the rate of 4 percent on such sale, use, storage, or consumption of energy and shall be exempt from an amount equal to 75 percent of the total amount of each local sales and use tax that would be collected at the rate of 1 percent on such sale, use, storage, or consumption of energy; and

(D) On or after January 1, 2016, such sale, use, storage, or consumption of energy shall be fully exempt from such sales and use taxation.

One of the final items that the integrated plant theory revised was the exemption for “consumable supplies” by incorporating it into the definition of “equipment” which qualifies for the sales and use tax exemption. Ga. Comp. R. & Regs. §560-12-2-.62(2)(a) defines consumable supplies as, “tangible personal property, other than machinery, industrial materials, packaging supplies, and energy, that is consumed or expended during the manufacture of tangible personal property.” Consumable supplies also include, “water treatment chemicals for use in or in conjunction with machinery or equipment and items that are readily disposable.”

In conclusion, the Georgia sales and use tax exemptions for manufacturers have been expanded over the past few years due to the integrated plant theory and mainly the statute change in wording from “direct use” to “necessary and integral”. Exempt items now include new manufacturing equipment, repair parts for manufacturing equipment, hand tools, cutting and welding gases, consumables, safety supplies, uniforms, utilities, and forklift leases and repairs.

To receive the benefit of these exemptions, the manufacturer must be set up as tax exempt with their vendors by issuing a Georgia sales and use tax certificate of exemption form (ST-5M). Erroneous tax payments may be recovered from the state of Georgia for up to 36-months after the payment of the sales and use tax.

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability. If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX (4829) or via email at info@salesandusetax.com.