United States

Georgia: Taxpayer Engaged in the Sale of Shredded Paper Not a Manufacturer

Jan 16, 2017
From KPMG TaxWatch

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In a recent letter ruling, the Department of Revenue addressed whether a taxpayer engaged in paper shredding and the sale of shredded paper was engaged in manufacturing. This had a bearing on whether the taxpayer was entitled to purchase equipment used in the shredding process exempt from sales and use tax. The taxpayer at issue had special trucks outfitted with various equipment that it used to shred client documents on the client’s premises. The taxpayer later sold the shredded documents, after compacting, to paper recyclers. Under Georgia law, a sales and use tax exemption applies to the purchase of machinery and equipment that is necessary and integral to the manufacture of tangible personal property. To qualify for the exemption, machinery, equipment, industrial materials, or supplies must be used in the manufacture of tangible personal property. In other words, the machinery, equipment, industrial materials, or supplies must be used by a manufacturer. Under a Georgia regulation, a manufacturer is an entity that is classified as such under the NAICS codes or is generally regarded as being a manufacturer.

The taxpayer at issue used a NAICS code for businesses engaged in providing “other support services.” In addition, most of the taxpayer’s revenues were derived from providing shredding services, rather than the sale of tangible personal property. With no further analysis, the Department concluded that the taxpayer was a service provider and not a manufacturer. Please contact Scott Jackson at 404-614-8688 with questions on LR SUT-2016-19.


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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.