United States

Georgia: Contractors are Ultimate Consumer of Tangible Personal Property Used Overseas in Construction Contracts

Feb 23, 2015
From KPMG TaxWatch

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The Georgia Tax Tribunal recently denied a taxpayer’s request for a refund of sales and use taxes paid on property purchased for use in performing a construction contract for the federal government. The taxpayer purchased electrical materials, vehicles, safety equipment, and office supplies for the construction of electrical facilities at U.S. military bases in Afghanistan. Certain of the items were shipped to the taxpayer’s facility in Georgia before being shipped overseas. The taxpayer initially claimed that the purchases were exempt as sales for resale. After the Department denied the taxpayer’s refund claim, the taxpayer brought the matter to the Tribunal. Before the Tribunal, the taxpayer raised the additional argument that because most of the items were purchased outside Georgia and only stored in Georgia temporarily, they were not subject to Georgia use tax.

The Tribunal first addressed the taxpayer’s argument that it purchased the items for resale to the federal government. Under a well-established Georgia case, Meadors, contractors are deemed to be the per se consumers of the items they purchase in Georgia for use in performing their contracts, and items purchased to meet the terms of the contract cannot be purchased for resale. The taxpayer also argued that the statute could not be applied to it, because all the services under the contract were performed overseas. The Tribunal held that the Meadors rule effectively trumped the statute (which spoke to services performed in the state) because under Meadors, the contractor is the per se user of the items purchased, and there was no indication that the statute, passed subsequent to Meadors, was intended to narrow its scope.

Next, the Tribunal addressed the taxpayer’s argument that most of its materials were not subject to use tax because they had only a momentary presence in Georgia as they had been purchased from out-of-state vendors and had been only temporarily stored in Georgia before being shipped to Afghanistan. The Tribunal reiterated that Georgia imposes use tax on the first instance of use, consumption, distribution, or storage of materials purchased outside of the state. The taxpayer’s temporary storage of materials at warehouses in Georgia was sufficient to qualify as “first use” in Georgia, notably because the taxpayer made an effort to combine items at the warehouse for shipping internationally to reduce shipping costs, as was required under the contract. Moreover, as a contractor, the taxpayer could not have been storing the items for “sale at retail” which is required to be excluded from the imposition of use tax on items stored in Georgia. Therefore, use tax was properly due.  Interestingly, the taxpayer also argued that under the terms of a departmental regulation, its storage of property in Georgia prior to shipment overseas should not be subject to tax. The regulation in question provided that property stored in the state became subject to tax when it became part of "the mass of property" in the state, i.e., effectively put to use in the state. The Department, on the other hand, argued that the regulation language pertained to an earlier version of the statute and should not be given deference. The Tribunal agreed that the regulation went beyond the terms of the current law and was not to be given deference or relied upon. For more information on Inglett & Stubbs International, Ltd. v. Riley, Docket No. TAX-IIT-1340253 (Ga. Tax Tribunal Feb. 11, 2015), please contact Ben Cella at (404) 979-2012.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.