Ga. Comp. R. & Regs. R. 560-12-2-.62 - Manufacturing Machinery and Equipment, Industrial Materials, and Packaging Supplies
(1)
Purpose. This Rule explains the sales and use tax exemptions in O.C.G.A §
48-8-3.2for 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.
(2) Definitions. For purposes of this Rule,
the following definitions and explanations apply:
(a) "Consumable supplies" means tangible
personal property, other than machinery, industrial materials, packaging
supplies, and energy, that is consumed or expended during the manufacture of
tangible personal property. The term includes but is not limited to water
treatment chemicals for use in, on, or in conjunction with machinery or
equipment and items that are readily disposable.
(b) "Energy" means natural or artificial gas,
oil, gasoline, electricity, solid fuel, wood, waste, ice, steam, water, and
other materials necessary and integral for heat, light, power, refrigeration,
climate control, processing, or any other use in any phase of the manufacture
of tangible personal property. The term excludes energy purchased by a
manufacturer that is primarily engaged in producing electricity for
resale.
(c) "Equipment" means
tangible personal property, other than machinery, industrial materials, and
energy. The term "equipment" includes durable devices and apparatuses that are
generally designed for long-term continuous or repetitive use. The term also
includes consumable supplies. Examples of equipment include but are not limited
to machinery clothing, cones, cores, pallets, hand tools, tooling, molds, dies,
waxes, jigs, patterns, conveyors, safety devices, and pollution control
devices. The term includes components and repair or replacement parts. The term
"equipment" excludes real property.
(d) "Fixtures" means tangible personal
property that has been installed or attached to land or to any building thereon
and that is intended to remain permanently in its place. A consideration for
whether tangible property is a fixture is whether its removal would cause
significant damage to such property or to the real property to which it is
attached. Fixtures are classified as real property. Examples of fixtures
include but are not limited to plumbing, lighting fixtures, slabs, and
foundations.
(e) "Industrial
materials" means materials that are purchased for future processing,
manufacture, or conversion into articles of tangible personal property for
resale when the industrial materials become a component part of the finished
product. The term also means materials that are coated upon or impregnated into
the product at any stage of its processing, manufacture, or conversion, even
though such materials do not remain a component part of the finished product
for sale. The term "industrial materials" includes raw materials.
(f) "Local sales and use tax" means any sales
or use tax that is levied and imposed in an area consisting of less than the
entire state.
(g) "Machinery" means
an assemblage of parts that transmits force, motion, and energy one to the
other in a predetermined manner to accomplish a specific objective. The term
"machinery" includes a machine and all of its components, including but not
limited to belts, pulleys, shafts, gauges, gaskets, valves, hoses, pipes,
wires, blades, bearings, operational structures attached to the machine
including stairways and catwalks, and other devices that are required to
regulate or control the machine, allow access to the machine, or to enhance or
alter its productivity or functionality. The term "machinery" includes repair
or replacement parts. The term excludes real property, energy, and consumable
supplies.
(h) "Machinery clothing"
means felts, screen plates, wires or any other items used to carry, form, or
dry work in process through the manufacture of tangible personal
property.
(i) "Manufacture of
tangible personal property," used synonymously with the term "manufacturing,"
means a manufacturing operation, series of continuous manufacturing operations,
or series of integrated manufacturing operations, engaged in at a manufacturing
plant or among manufacturing plants to change, process, transform, or convert
industrial materials by physical or chemical means, into articles of tangible
personal property for sale, for promotional use, or further manufacturing that
have a different form, configuration, utility, composition, or character. The
term includes but is not limited to the storage, preparation, or treatment of
industrial materials; assembly of finished units of tangible personal property
to form a new unit or units of tangible personal property; movement of
industrial materials and work in process from one manufacturing operation to
another; temporary storage between two points in a continuous manufacturing
operation; random and sample testing that occurs at a manufacturing plant; and
a packaging operation that occurs at a manufacturing plant.
(j) "Manufacturer" means a person or
business, or a location of a person or business that is engaged in the
manufacture of tangible personal property for sale, promotional use, or further
manufacturing.
1. To be considered a
manufacturer, the person or business, or the location of a person or business,
must be:
(i) Classified as a manufacturer
under the 2007 North American Industrial Classification System Sectors 21, 31,
32, or 33; or North American Industrial Classification Systems industry code
22111 or specific code 511110; or
(ii) Generally regarded as a
manufacturer.
2.
Businesses that are primarily engaged in providing personal or professional
services, or in the operation of retail outlets, generally including but not
limited to grocery stores, pharmacies, bakeries, or restaurants, are not
considered manufacturers.
(k) "Manufacturing plant" means any facility,
site, or other area where a manufacturer engages in the manufacture of tangible
personal property.
(l) "Packaging
operation" means bagging, boxing, crating, canning, containerizing, cutting,
measuring, weighing, wrapping, labeling, palletizing, or other similar
processes necessary to prepare or package manufactured products in a manner
suitable for sale or delivery to customers as finished goods, or suitable for
the transport of work in process at or among manufacturing plants for further
manufacturing, and the movement of such finished goods or work in process to a
storage or distribution area at a manufacturing plant.
(m) "Packaging supplies" means materials,
whether reusable or single-use, used in a packaging operation solely for
packaging tangible personal property. The term includes but is not limited to
containers, sacks, boxes, wraps, fillers, cones, cores, pallets, and bags. The
term also includes such items as labels, invoices, packing slips, tags, and
plates affixed to the product or affixed to or inserted into product
packaging.
(n) "Real property"
means land, any buildings thereon, and any fixtures attached thereto.
(o) "Repair or replacement part" means a part
that is used to maintain, repair, restore, install, or upgrade machinery or
equipment that is necessary and integral to the manufacture of tangible
personal property. Examples of repair and replacement parts may include but are
not limited to oils, greases, hydraulic fluids, coolants, lubricants, machinery
clothing, molds, dies, waxes, jigs, and other interchangeable
tooling.
(p) "Substantial purpose"
means the purpose for which an item of tangible personal property is used more
than one-third of the total amount of time that the item is in use.
Alternatively, instead of time, the purpose may be measured in terms of other
applicable criteria such as the number of items produced.
(3) Machinery and Equipment Exemption. The
sale, use and storage of machinery or equipment that is necessary and integral
to the manufacture of tangible personal property are exempt from sales and use
tax.
(a) General requirements. In order to
qualify for the manufacturing machinery and equipment exemption in O.C.G.A
§
48-8-3.2, the property purchased or leased must:
1.
Have the character of machinery or equipment, or of repair or replacement parts
to machinery or equipment, at the time of sale or lease, or consist of
components which, when assembled, will have the character of machinery or
equipment;
2. Be used at a
manufacturing plant; and
3. Be
necessary and integral to the manufacture of tangible personal property for
sale, for promotional use, or further manufacturing.
(b) Leases. The exemption under O.C.G.A
§
48-8-3.2applies to all lease payments for machinery or equipment made on or after the
date that the machinery or equipment qualifies for the exemption, even if the
machinery or equipment did not qualify for the exemption at the date of lease
inception.
(c) Parts withdrawn from
inventory. Miscellaneous spare parts, the ultimate use of which is unknown at
the time of purchase, are eligible for the exemption as components or repair or
replacement parts. However, use tax must be accrued and remitted if spare parts
are withdrawn from the inventory of spare parts and used for any purpose other
than to maintain, repair, restore, install, or upgrade machinery or equipment
that is necessary and integral to the manufacture of tangible personal
property.
(d) Application of
Machinery and Equipment Exemption: Necessary and Integral. When determining
whether machinery or equipment is necessary and integral to the manufacture of
tangible personal property, the Commissioner shall evaluate the facts and
circumstances of each case.
1. Examples of
machinery or equipment that generally does not qualify as necessary and
integral to the manufacture of tangible personal property at any time include
but are not limited to:
(i) Motor vehicles
that are required to be registered for operation on public highways;
(ii) Power lines or transformers that bring
electricity into a manufacturing plant;
(iii) Real property. Examples include but are
not limited to concrete slabs and foundations, and structures or fixtures used
for general manufacturing plant ventilation, heating, cooling, illumination,
communications, plumbing, or the personal comfort and convenience of the
manufacturer's employees;
(iv)
Storage tanks, containers, racking systems, or other machinery or equipment
used to handle, store, or distribute finished goods upon completion of the
packaging operation unless exempted by another code section;
(v) Administrative machinery or equipment
including computers, related computer peripherals, servers, copiers,
telephones, facsimile machines, office furniture, office furnishings, office
supplies such as paper and pencils, and educational materials used for
non-manufacturing functions, including but not limited to sales, marketing,
research and development, accounting and payroll, purchasing, finished goods
inventory control, warehousing, and distribution;
(vi) Machinery or equipment that is not
operated under the control of the manufacturer's employees or other persons
under the manufacturer's direction and control. Customer self-service or
vending machinery or equipment is not considered to be operated under the
manufacturer's direction and control; and
(vii) Machinery or equipment used in
quarrying and mining for site preparation, including the removal and clearing
of overburden.
2.
Examples of machinery or equipment that generally qualifies as necessary and
integral to the manufacture of tangible personal property include but are not
limited to:
(i) Machinery or equipment used to
convey or transport industrial materials, work in process, consumable supplies,
or packaging supplies at or among manufacturing plants, or to convey and
transport finished goods to a distribution or storage point at the
manufacturing plant. Specific examples may include but are not limited to
forklifts, conveyors, cranes, hoists, and pallet jacks;
(ii) Machinery or equipment used to gather,
arrange, sort, mix, measure, blend, heat, cool, clean, or otherwise treat,
prepare, or store industrial materials for further manufacturing;
(iii) Machinery or equipment used to control,
regulate, heat, cool, or produce energy for other machinery or equipment that
is necessary and integral to the manufacture of tangible personal property.
Specific examples may include but are not limited to boilers, chillers,
condensers, water towers, dehumidifiers, humidifiers, heat exchangers,
generators, transformers, motor control centers, solar panels, air dryers, and
air compressors;
(iv) Testing and
quality control machinery or equipment located at a manufacturing plant used to
test the quality of industrial materials, work in process, or finished
goods;
(v) Starters, switches,
circuit breakers, transformers, wiring, piping, and other electrical
components, including associated cable trays, conduit, and insulation, located
between a motor control center and exempt machinery or equipment, or between
separate units of exempt machinery or equipment;
(vi) Machinery or equipment used to provide
safety for the employees working at a manufacturing plant or to protect the
quality of the product, including but not limited to safety machinery and
equipment required by federal or state law, gloves, ear plugs, face masks,
protective eyewear, hard hats or helmets, or breathing apparatuses;
(vii) Machinery or equipment used to
condition air or water to produce conditions necessary for the manufacture of
tangible personal property, including water treatment systems;
(viii) Machinery or equipment used in
quarrying and mining activities, including blasting, extraction, and
crushing;
(ix) Machinery or
equipment, including repair, replacement and component parts, used to maintain,
clean, repair, restore, install, upgrade or manufacture machinery or equipment
that is necessary and integral to the manufacture of tangible personal
property;
(x) Machinery or
equipment used in pollution control, sanitizing, sterilizing, or recycling
processes. Pollution control machinery or equipment that is necessary and
integral to the manufacture of tangible personal property is not required to be
certified by the Environmental Protection Division, Georgia Department of
Natural Resources as being adequate and necessary for the purpose of
eliminating or reducing air or water pollution; and
(xi) Maintenance and replacement parts for
machinery or equipment, stationary or in transit, used to mix, agitate, and
transport freshly mixed concrete in a plastic and unhardened state, including
but not limited to mixers and components, engines and components, interior and
exterior operational controls and components, hydraulics and components, all
structural components, and all safety components.
(I) Sales and use taxes on motor fuel used as
energy in a concrete mixer truck are not exempt or refundable.
(II) Subparagraph (3)(d)2.(xi) is effective
for the period commencing on July 1, 2021, and ending on June 30,
2026.
3. For
machinery or equipment that has multiple purposes, some purposes necessary and
integral to the manufacture of tangible personal property, and some purposes
not necessary and integral to the manufacture of tangible personal property,
the substantial purpose of such machinery or equipment will prevail for
purposes of determining the eligibility for exemption. The Commissioner may
consider any reasonable methodology for measuring the substantial purpose of
machinery or equipment for which the substantial purpose is not readily
identifiable.
(e)
Application of Machinery and Equipment Exemption: Manufacture of Tangible
Personal Property. The manufacture of tangible personal property commences as
industrial materials are received at a manufacturing plant and concludes once
the packaging operation is complete and the tangible personal property is ready
for sale or shipment, regardless of whether the manufacture of tangible
personal property occurs at one or more separate manufacturing plants.
Examples of activities that are not considered the manufacture of tangible personal property:
1. Research and development
activities;
2. Storage, general
handling, and distribution of finished goods inventory; and
3. Any other activity that occurs prior to
industrial materials being received at a manufacturing plant or after the
completion of the packaging operation at a manufacturing plant.
(4) Industrial
Materials Exemption. The sale, use, storage, and consumption of industrial
materials are exempt from sales and use tax. In order to qualify for the
exemption, the materials must be used for the processing or manufacture of, or
conversion into, articles of tangible personal property; and the industrial
materials must:
(a) become a component part of
the finished product or
(b) be
coated upon or impregnated into the product at any stage of its processing,
manufacture, or conversion, even though such materials do not remain a
component part of the finished product for sale.
(5) Exemption for Packaging Supplies. The
sale, use, storage, or consumption of packaging supplies is exempt from sales
and use tax.
(6) Certificates of
Exemption.
(a) Any person making a sale or
lease of machinery or equipment (including components and repair or replacement
parts) that is necessary and integral to the manufacture of tangible personal
property, packaging supplies, or industrial materials must collect sales tax
unless such person takes a direct pay permit from the purchaser or lessee or,
in good faith, accepts from the purchaser or lessee a properly completed Form
ST-5M Certificate of Exemption.
(b)
Where a certificate of exemption or direct pay permit has not been previously
obtained and submitted and tax is remitted on the purchase or lease of exempt
property, the purchaser or lessee may apply to the Commissioner for a refund of
such tax.
(7)
Agriculture Producers. Every person defined as a dealer in O.C.G.A. §
48-8-2is
required to file a sales and use tax registration for each place of business in
this state. A dealer that performs both manufacturing and agricultural
operations at a single place of business may avail itself of the exemptions
under either O.C.G.A. §
48-8-3.2 or O.C.G.A. §
48-8-3.3, but not both, for that place of business in any one calendar year.
Notes
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