Sales Tax State Activity Update - January 2009

Georgia Broadens Scope of Manufacturing Exemptions

The 2008 Legislative Analysis for Enacted Legislation, published by the Georgia Department of Revenue summarizes the changes that will come into affect January 1, 2009.

House Bill 237 (O.C.G.A. § 48-8-3) Broadens existing sales and use tax exemptions for certain manufacturing machinery by expanding the current manufacturing machinery exemption to include “equipment,” and by expanding the exemption to include machinery or equipment that performs a necessary and integral function in the manufacturing process, regardless of whether the machinery is incorporated into a facility or causes a chemical or physical change to the raw materials during the manufacturing process.

This legislation eliminates the “used directly” requirement for purchases of certain machinery and equipment (and related repair or replacement parts) and expands the exemption by rejecting the more rigid “physical change” rule now in effect. This is generally referred to as the “Integrated Plant Theory” or “Integrated Plant Approach.”

This legislation also expands the exemption regarding sales of certain primary material handling equipment and racking systems used in warehouse or distribution facilities located in Georgia by removing the “used directly” requirement. The requirement that the equipment be either part of an expansion worth $5 million or more, or part of the construction of a new warehouse or distribution facility worth $5 million or more has not changed. The “used directly” requirement would also be removed for the exemption related to the remanufacture of aircraft engines, parts, or components.

Finally, this legislation also adds “waxes” as repair or replacement parts eligible for exemption, and adds an exemption for “repair, replacement, or component parts” related to certain air and water pollution reducing machinery and equipment. This bill is effective beginning January 1, 2009.

View the full report Tax Law & Policy 7-10-08.

House Bill 237 can be viewed at the Georgia General Assembly.

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