Does a maintenance provider owe Georgia tax when customer-owned replaced parts become its property and are later refurbished and reused?

Plain-English summary

The maintenance agreement said removed customer parts became the provider's property. Because both parties exchanged consideration under that agreement, the transfer of title was a sale. The provider did not acquire the used parts for resale, so it was a taxable retail sale to the provider.

If title passed in Georgia, the provider owed sales tax as the purchaser. If it acquired the replaced part outside Georgia and later used it in Georgia, it owed use tax at the first Georgia use. Refurbishing and reusing a part in later customer repairs did not erase the tax on acquiring or first using that part.

Common questions

Q: Was tax limited to the provider's first withdrawal of a new part from inventory?

A: No. The later transfer of the removed customer part to the provider was itself a separate taxable acquisition or use-tax event.

Q: Did the provider acquire the replaced parts for resale?

A: No. The Department found that the maintenance provider did not obtain them for the purpose of reselling them.

Citations and references

• O.C.G.A. § 48-8-2(31), (33)(A), (40) -- retail sale, sale, and use
• O.C.G.A. § 48-8-30(b), (c), (g) -- sales and use tax liability

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2014-11

Original ruling text

Date Issued:
August 15, 2014
Georgia Letter Ruling:
LR SUT-2014-11
Topic: Service Provider – Used Parts
This letter is in response to your request for guidance on the application of Georgia sales and use tax to certain
transactions entered into by Taxpayer.
Facts as Presented by Taxpayer
Taxpayer is engaged in providing medical to hospitals and other healthcare institutions in Georgia. This equipment
is usually offered with an optional maintenance agreement. When Taxpayer services an item covered by a
maintenance agreement, Taxpayer will often remove worn, obsolete, or defective parts and replace them with new or
refurbished components taken from Taxpayer’s parts inventory.
Taxpayer purchases the parts in its parts inventory from third-party vendors nationwide. Taxpayer self-assesses and
remits Georgia use tax when these parts are first removed from inventory and used in maintaining a customer’s
equipment. The same part, in refurbished state, may ultimately be used on the equipment of multiple customers.
Taxpayer requests a ruling regarding whether it is liable for use tax only when it first removes the part from
inventory or also when Taxpayer subsequently uses the part in repairing a different customer’s equipment.
Issue
Does Taxpayer owe Georgia sales and use tax upon its acquisition and/or use of replaced parts as described above?
Analysis
In Georgia, “[t]here is levied and imposed a tax on the retail purchase, retail sale, rental, storage, use, or
consumption of tangible personal property . . .” 1 “Retail sale” means any sale, lease, or rental for any purpose other
than for resale, sublease, or subrent. 2 “’Sale’ means any transfer of title or possession, transfer of title and
possession, exchange, barter, lease, or rental, conditional or otherwise, in any manner or by any means of any kind
of tangible personal property for a consideration . . .” 3 “Use” means the exercise of any right or power over tangible
personal property incident to the ownership of the property. 4 (emphasis added). Thus, unless an exemption applies,
when title (or possession) passes in Georgia in exchange for consideration, or when a use occurs in Georgia, tax is
due as described below.
Every purchaser of tangible personal property at retail in this state shall be liable for a tax on the purchase at the rate
of 4 percent (plus the applicable local rate) of the sales price 5 of the purchase. 6 The tax shall be paid by the
purchaser to the retailer making the sale, as provided in this article. 7 The retailer shall remit the tax to the
commissioner as provided in this article and, when received by the commissioner, the tax shall be a credit against
the tax imposed on the retailer. 8 Whenever a purchaser of tangible personal property under subsection 48-8-30(b)
does not pay the tax imposed upon him or her to the retailer/dealer who is involved in the taxable transaction, the
purchaser shall be a dealer himself and the commissioner, whenever he or she has reason to believe that a purchaser
or lessee has not so paid the tax, may assess and collect the tax directly against and from the purchaser. 9

1

O.C.G.A. § 48-8-30(a).
O.C.G.A. § 48-8-2(31).
3
O.C.G.A. § 48-2-33(A).
4
O.C.G.A. § 48-8-2(40).
5
“’Sales price’ applies to the measure subject to sales tax and means the total amount of consideration, including
cash, credit, property, and services, for which personal property or services are sold, leased, or rented, valued in
money, whether received in money or otherwise . . .” (O.C.G.A. § 48-8-2(34)(A)).
6
O.C.G.A. § 48-8-30(b)(1).
7
Id.
8
Id.
9
O.C.G.A. § 48-8-30(g).
2

August 15, 2014
LR SUT-2014-xx
Service Provider
Page 2 of 2

Unless certain limited exceptions apply, “[u]pon the first instance of use, consumption, distribution, or storage
within this state of tangible personal property purchased at retail outside this state, the owner or user of the property
shall be a dealer and shall be liable for a tax at the rate of 4 percent (plus the applicable local rate) of the purchase
price”. 10
In the case at hand, the transactions between Taxpayer and any particular customer (“Customer”) begin with the sale
of equipment from Taxpayer to Customer. Customer presumably obtains title to and full ownership rights in the
equipment, including all parts and components of the equipment. When Customer and Taxpayer enter into a Master
Service Agreement (the “Agreement”), Taxpayer will provide Customer certain equipment quality performance
assurance services and repair services for the prices set forth in the Agreement. The Agreement also provides that
“[r]eplaced parts become [Taxpayer’s] property and will promptly be removed by [Taxpayer] from the Equipment
Site”. Thus, pursuant to the mutually agreed upon terms, conditions, and obligations contained in the Agreement,
title/ownership of replaced parts passes from Customer to Taxpayer.
When title to the replaced parts passes from Customer to Taxpayer, a “sale” has occurred. As discussed above, a
sale is any transfer of title or possession, transfer of title and possession, exchange, barter, lease, or rental,
conditional or otherwise, in any manner or by any means of any kind of tangible personal property for a
consideration. Both parties to the Agreement provide and receive consideration. Consequently, the transfer of
replaced parts from Customer to Taxpayer is in exchange for consideration and is, thus, a “sale” for sales and use tax
purposes.
The sale described above does not appear to be for resale, i.e., Taxpayer does not acquire the replaced parts for the
purpose of reselling the parts. Since a “retail sale” is a sale for any purpose other than for resale, the sale of replaced
parts from Customer to Taxpayer is a retail sale for sales and use tax purposes. If that retail sale occurs in Georgia,
the sale is subject to the tax imposed by O.C.G.A. § 48-8-30(b), and pursuant to O.C.G.A. § 48-8-30(b) and (g),
Taxpayer, as the purchaser of the replaced parts, is liable for the tax.
If the sale of replaced parts occurs outside Georgia but Taxpayer subsequently uses the parts in Georgia, O.C.G.A. §
48-8-30(c) (commonly referred to as “use tax”) is implicated, and Taxpayer owes the tax upon Taxpayer’s first use
of the replaced parts in Georgia.
Ruling
Whether Taxpayer acquired the replaced parts in Georgia or acquired the parts outside Georgia and subsequently
used the parts in Georgia, Taxpayer is liable for the tax imposed by O.C.G.A. § 48-8-30 and any applicable local
sales and use taxes.
The opinions expressed in this ruling are based upon the information contained in your request and limited to the
specific transactions, facts, circumstances and taxpayer in question. Should the circumstances regarding the
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.

10

O.C.G.A. §§ 48-8-30(c), 48-8-2(30) (explaining that “purchase price” applies to the measure subject to use tax
and has the same meaning as sales price).