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Contractors in Georgia may be Subject to Sales Tax

Contributor: John Bonk, Tax & Business Services Senior Manager

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Contractors in Georgia deemed to be consumers of goods used outside the state and, therefore, liable for the states Sales and Use Tax under contractor-as-consumer rule.

The Georgia Court of Appeals on October 25, 2016 denied a refund claim filed by Inglett & Stubbs International, Ltd. ("Inglett"), an electrical contractor, for sales tax paid on purchases that were then used in Afghanistan for projects for the U.S. government.

The Georgia Sales Tax Code stipulates that each person who contracts to furnish tangible personal property and to perform services under the contract within the state shall be deemed to be the consumer of the tangible personal property and shall pay the sales tax imposed at the time of the purchase. The Georgia statute defines a contractor as a consumer of goods rather than a reseller to the customer, exempt from tax.

In the case, Inglett argued that it was not preforming the contract within the state, since the contract was for work to be completed in Afghanistan and, therefore, would not fall under the statute. However, the Afghanistan contracts required Inglett to provide all "materials, tools, equipment, and ... other items as necessary to complete the work." Inglett conceded that it purchased the work-related materials within Georgia, then stored those items in its Georgia facility pending shipment to Afghanistan. In carrying out its contractual responsibilities, the contractor performs work and services in Georgia, by purchasing and storing property in the state. These facts lead to Inglett being treated as a consumer, subjecting it to sales tax liability. The fact that Inglett shipped the purchased materials to Afghanistan made no difference.

Currently, we are unaware if the state has attempted to apply this to other fact patterns, but a company with facts that could mirror the contractor referenced in the case could file a letter ruling with the Department. The letter ruling could be helpful by allowing a client to understand potential tax exposure and plan accordingly. A taxpayer who purchases materials in Georgia to fulfill contracts in other states or countries could have sales tax exposure and should consider a letter ruling.

 
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