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Government Contractor Liable for Georgia Sales and Use Tax on Items Purchased for Overseas Contract


Construction

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)

(05/20/2015)
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