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Georgia ruled that a contractor for the federal government was not entitled to a refund of sales and use tax on items purchased for use in the construction of facilities on overseas military bases. The contractor argued that the items were exempt because they were purchased for resale to the federal government.  The contractor further argued that Georgia use tax was not due on items purchased outside the state because the items were only in the contractor’s Georgia facility for a short time, which was three weeks on average. The state found that the resale exemption did not apply to items purchased in Georgia because under J.W. Meadors & Co. v. State, contractors are the per se consumers of the items they purchase for use in performing their construction contracts and are therefore liable for Georgia sales and use tax. The contractor argued that its contract was performed overseas but that Georgia tax law only holds contractors liable for Georgia sales and use tax on items they purchase for the performance of contracts within Georgia. The state found that J.W. Meadors & Co. v. State applied because there was no indication that the cited tax law, which was enacted after Meadors, was intended to overrule or limit Meadors.Regarding whether use tax applied to items purchased outside Georgia, the state found that the contractor’s storage and repackaging of the items at its Georgia facility prior to shipment overseas qualified as taxable use. The contractor’s reorganizing and combining of the items for shipping in its Georgia warehouse to fulfill its contractual obligation to minimize shipping costs was a taxable use. The state also found that Reg. 560-12-2-.54(1)(b), which states that use tax does not apply unless the property "has become a part of the mass of the property in this State," was not controlling because it conflicts with the statutory definition of "use." (Inglett & Stubbs International, Ltd. v. Riley, Georgia Tax Tribunal, Docket No. Tax-IIT-1340253, Decision 2015-02, February 11, 2015)


On March 10, 2015, a bipartisan group of senators introduced the Marketplace Fairness Act of 2015. Similar legislation – the Marketplace Fairness Act of 2013 – was previously introduced in February 2013 and passed by the Senate on May 6, 2013. That legislation failed to be enacted. If passed, the Marketplace Fairness Act of 2015 would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. For more information on the previous legislation, visit Federal Government Introduces New Remote Seller Bill. (Marketplace Fairness Act of 2015, March 10, 2015)


UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.


On December 16, 2014, President Barack Obama signed the Consolidated and Further Continuing Appropriations Act, 2015, for sales and use tax purposes. The Act includes a provision that extends the Internet Tax Freedom Act (ITFA) until October 1, 2015 with all provisions unchanged.


On January 9, 2015, the House of Representative introduced a bill (un-numbered) that would permanently extend the ITFA, banning states and local jurisdictions from imposing any new tax on internet access. The proposed bill removes the current effective dates of November 1, 2003 through October 1, 2015 and changes the effective date to be effective for new taxes imposed after the date of the enactment.  It is not clear if states that have been grandfathered under the existing provision could retain their current tax on internet access but it appears that may be the case.  No formal legislation has been introduced that would incorporate the Marketplace Fairness Act into this bill. The bill is sponsored by House Judiciary Committee Chairman Bob Goodlatte, among others.


For our previous news item on this topic, see Internet Tax Freedom Act is Extended Through December 11, 2014.


For an update on this news item, see Internet Tax Freedom Act Extended Until December 11, 2015.


(Consolidated and Further Continuing Appropriations Act, 2015; H.R. 235)


Georgia has issued a letter ruling discussing the sales and use tax treatment of cloud computing services. The service in question was to support customers’ telecommunications equipment related to voice, video, and messaging functions. Customers would not receive tangible personal property as part of the service purchase. At no time is any software or application transferred to the customer and the customer cannot access the hosted software code nor manipulate the software in any way.  The servers hosting the hardware and software used to run the service were to be located outside Georgia. The customers accessed the services via their own internet, network, or telecommunications connections. Georgia sales and use tax would not apply to the business’s sale of cloud computing services or to the hosting of customer-provided software applications. Additionally, the services are not taxable telecommunications services because the taxpayer did not hold a certificate of authority from the Georgia Public Service Commission or sell local exchange or cellular telephone service. Since purchasers don’t gain title, possession or control of the seller’s software or hardware, the services are not taxable sales of tangible personal property. If the provider does make retail sales of tangible personal property to customers in Georgia, it would be required to collect sales and use tax on those sales. Since the provider is the end user, it is liable for sales or use tax on its purchases and uses of tangible personal property used to provide the services. For sales and use tax purposes, the taxpayer’s services are not considered as being provided within Georgia.This seems to indicate that Georgia is following a server location rule since the services are not deemed to occur in Georgia.  (Letter Ruling LR SUT-2014-05, Georgia Department of Revenue, June 9, 2014, released September 10, 2014)


President Barack Obama has signed federal legislation extending the Internet Tax Freedom Act (ITFA) through December 11, 2014 as part of the joint resolution which made continuing appropriations for fiscal year 2015. The ITFA was previously set to expire on November 1, 2014. The ITFA bars state and local governments from imposing multiple or discriminatory taxes on electronic commerce and taxes on Internet access.


For an update to this news item, see Internet Tax Freedom Act Extended Until October 1, 2015, Permanent Extension Introduced.


(P.L. 113-164 (H.J. Res. 124), 113th Congress, 2nd Session, Laws 2014)



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