May a cash-management provider charge one nontaxable service fee when it retains title to equipment placed at customer sites?

Plain-English summary

The provider could bill one nontaxable charge for secure transportation and cash-management services. It retained title to the equipment installed at customer locations, intended to recover it after the contract, and paid sales or use tax on the equipment as the service provider and final consumer.

The provider also had to consider local use tax where the equipment was deployed to perform a contract, even if state tax had already been paid. It could generally credit previously paid state or local tax against later like-tax liability.

Common questions

Q: Did customer use of the equipment make the service fee a taxable lease?

A: Not on the stated facts. The agreement presented one service solution, title stayed with the provider, and the provider intended to recover the item.

Q: Was tax due only where the provider bought the equipment?

A: No. Additional local use tax could arise in the county where the equipment was used to fulfill the contract.

Citations and references

• O.C.G.A. § 48-8-63(b) -- service providers as consumers
• O.C.G.A. § 48-8-42(a) -- credit for previously paid like tax
• C.W. Matthews Contracting Co. v. Collins, 265 Ga. 448 (1995) -- local use tax

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2013-12

Original ruling text

State of Georgia
Douglas J. MacGinnitie
Commissioner

Department of Revenue

Administrative Division – Office of Tax Policy
Suite 15107
1800 Century Blvd.
Atlanta, Georgia 30345-3205
(404) 417-6649

Frank M. O’Connell
Director

June 12, 2013

Georgia Letter Ruling SUT No. 2013-06-12-01

This letter is in response to your request for guidance on the application of Georgia sales and use tax to
services offered by the Taxpayer.
Facts
The Taxpayer has provided the following facts:
The Taxpayer has recently begun selling a new service to its customers. The service entails the use of an
item that is drop-shipped from the manufacturer directly to the customer’s place of business, plus
associated services, including cash management services. The agreement between the Taxpayer and its
customer is a long-term contract and the agreement does not provide that the item is being rented or
leased; the agreement only allows for the use of the item. Title to the item remains with the Taxpayer
throughout the term of the contract, at the end of which, it is the Taxpayer’s intention to recover the item.
The service is presented to the customer as a total solution, i.e., the use of the item provided by the
Taxpayer and the associated services for a single charge on their invoice.
Issue
Because the Taxpayer is paying Georgia sales tax on the item to the manufacturer or accruing and
remitting applicable state and local use tax on its purchase of the item, is it proper for the Taxpayer to
then bill the customer a single charge - for secure transportation and cash management services only without including Georgia sales tax since each of these services would not otherwise be subject to
Georgia sales tax?
Analysis
Georgia imposes a tax on the retail sales price of tangible personal property and certain services.1 Unlike
sales of tangible personal property, which are generally presumed taxable, sales of services are exempted
unless specifically designated as taxable.

1

O.C.G.A. §§ 48-8-2(31); 48-8-30(a).

An Equal Opportunity Employer

June 12, 2013
Page 2 of 3

Service contractors are treated as users or consumers of the materials they buy for use in completing
contracts. They must pay the sales tax at the time of purchase, and if the tax is not paid then, or if the
purchase was made out of state, the contractors are liable for the payment of use tax. 2
In C.W. Matthews Contracting Co. v. Collins, the Supreme Court of Georgia held that the State Revenue
Commissioner may assess a local option tax on contractors’ use of equipment in other counties, where the
use created no state obligation. 3 The court held that “the legislative intent of section 48-8-82 was to
restrict the local tax to the same types of items and transactions defined as subject to the state tax, and not
to limit the imposition of local tax to those instances in which the state tax must actually be paid.” The
court went on to explain that “the legislature clearly relied on Article 1 of Chapter 8, the state sales and
use tax article, to fill these gaps by stating in section 48-8-82 that a local option tax must ‘correspond’ to
the state sales and use tax, and by providing in section 48-8-87 that a local option tax is to be
administered and collected ‘in the same manner and subject to the same applicable provisions,
procedures, and penalties provided in Article 1.’” 4 The Court further noted that section 48-8-90 “clearly
contemplates that more than one local taxing jurisdiction may impose a local option tax by permitting a
taxpayer to credit the amount of local option tax paid in one jurisdiction against the subsequent
imposition of a local option tax on the same property by another jurisdiction.”5
Service contractors are not only liable for state and local sales tax at the time of purchase, but are also
liable for local use tax at the rate of the jurisdiction in which the tangible personal property is
subsequently used to fulfill the contract. Credit is granted for state sales or use tax legally imposed and
previously paid in any state or taxing jurisdiction that grants credit for a like tax paid in Georgia.6 The
credit for taxes paid to another state applies only to taxes paid before Georgia state tax becomes due, and
not to taxes paid later in destination states or jurisdictions. 7
Ruling
Because the Taxpayer is paying Georgia sales tax on the item to the manufacturer at the time of purchase
or accruing and remitting applicable state and local use tax on its purchase of the item, it is proper for the
Taxpayer to then bill the customer a single charge - for secure transportation and cash management
services only - without including Georgia sales tax since each of these services would not otherwise be
subject to Georgia sales tax.
However, as a service contractor, the Taxpayer is an end user and consumer and liable for sales and use
tax on all tangible personal property used by it in the performance of a service contract. Tax is due at the
rate of the county in which the Taxpayer takes delivery of the tangible personal property as well as the
rate of the county in which the tangible personal property is used by the Taxpayer to fulfill the service
contract. In general, reciprocal credit may be taken for sales or use tax paid at the time of purchase against
any use tax liability that may become due at a later date.
The opinions expressed in this ruling are based upon the information contained in your request and
limited to the specific transactions and taxpayer in question. Should the circumstances regarding the
2

O.C.G.A. § 48-8-63(b); Ga. Comp. R. & Regs. r. 560-12-2-.26(1).
265 Ga. 448 (1995).
4
Ibid.
5
Ibid.
6
O.C.G.A. § 48-8-42(a); Ga. Comp. R. & Regs. r.560-12-1-.32(1).
7
Georgia Policy Statement No. SUT 2011-05-25.
3

An Equal Opportunity Employer

June 12, 2013
Page 3 of 3

transactions change, or differ materially from those represented, then this ruling may become invalid. In
addition, please be advised that subsequent statutory or administrative rule changes or judicial
interpretations of the Statutes or Rules upon which this advice is based may subject similar future
transactions to a different tax treatment than that expressed in this response.

An Equal Opportunity Employer