Are compressed-gas cylinders and tanks exempt when sold or leased for qualifying use at a Georgia manufacturing plant, and what documentation must the seller keep?

Plain-English summary

Sales and leases of compressed-gas cylinders, dewars, micro-bulk tanks, and bulk tanks qualified for Georgia's manufacturing exemption when the containers held exempt gas that was necessary and integral to manufacturing at a Georgia plant. The containers controlled, regulated, and safely expelled the gas, so they qualified as necessary manufacturing equipment when the gas use itself qualified.

The seller bore the burden of proving exemption. It could satisfy that burden by accepting in good faith a certificate that was complete, used the right form, claimed an exemption available for the transaction and jurisdiction, could apply to the item, and was reasonable for the purchaser's business. Supporting purchase and sales records had to be retained for at least three years.

Common questions

Q: Did every sale or lease of a compressed-gas cylinder qualify?

A: No. The cylinder or tank had to be used at a manufacturing plant to hold gas that was itself exempt as necessary and integral to manufacturing.

Q: What documentation protected the seller?

A: A properly completed and appropriate exemption certificate accepted in good faith, plus supporting records kept for at least three years.

Citations and references

• O.C.G.A. § 48-8-3.2 -- manufacturing machinery and equipment exemption
• Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(c), (3)(a) -- equipment and exemption test
• O.C.G.A. § 48-8-38(a)-(b) -- exemption certificates
• O.C.G.A. § 48-8-52(a)(1)(D) -- three-year record retention

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2016-03

Original ruling text

Georgia Letter Ruling: LR SUT-2016-03
Dated: February 15, 2016
Topic: Manufacturing Exemption and Documentation
This letter is in response to your request for guidance on the application of Georgia’s sales and use tax
to sales and leases of compressed gas cylinders, dewars, micro bulk tanks, and bulk tanks when sold
to a Georgia manufacturer for use or storage at a manufacturing plant in Georgia.
Facts as Presented by Taxpayer
[Redacted] (“Taxpayer”) is a distributor of industrial, medical, and specialty compressed gases.
Taxpayer makes frequent sales to manufacturers. The gases sold by Taxpayer, depending on the end
use by the customer, may qualify for state sales and use tax exemptions. Customers may purchase
gases with or without the purchase of a cylinder. If the customer does not choose to purchase the
cylinder, they will rent/lease the cylinder from Taxpayer. After the customer uses or consumes the
contents of the rented/leased cylinder, dewar, or tank, the customer returns the empty unit to
Taxpayer.
Taxpayer uses different cylinders and tanks depending on the product sold, volume required, and
pressures needed by the customer. A gas cylinder is a vessel used to maintain gases above atmospheric
pressure. Cylinders are designed and constructed to automatically effect the temperature and pressure
changes necessary for the safe extraction of the particular product from the cylinder. The useful lives
of cylinders are decades, but the assets require testing every five or ten years depending on the cylinder
and service type.
Issues

1. Does the sale (including rentals/leases) of compressed gas cylinders (including dewars, micro bulk
   tanks, and bulk tanks) qualify for exemption under O.C.G.A. § 48-8-3.2 if the compressed gases
   contained within the cylinders are exempt as either energy, industrial materials, or consumable
   supplies under O.C.G.A. § 48-8-3.2?
2. How does Taxpayer satisfy the burden of proving that sales are exempt from tax?
   Analysis
   All retail purchases and sales of tangible personal property are taxable except to the extent prohibited
   by the Constitutions of the United States and of Georgia and except to the extent that specific
   exemptions are provided by statute.1 “Retail sale” or a “sale at retail” means any sale, lease, or rental
   for any purpose other than for resale, sublease, or subrent. 2
   O.C.G.A § 48-8-3.2 provides a sales and use tax exemption for sales of machinery or equipment used
   in a manufacturing plant that is necessary and integral to the manufacture of tangible personal
   property.3 The term “sale” includes leases and rentals. 4 In order to qualify for the manufacturing
   machinery and equipment exemption in O.C.G.A § 48-8-3.2, the cylinders at issue must:

3 O.C.G.A § 48-8-3.2.
4 O.C.G.A § 48-8-2(33)(A).

Georgia Letter Ruling: LR SUT-2016-03
Dated: February 15, 2016
Topic: Manufacturing Exemption and Documentation
Page 2 of 3

1. Have the character of machinery or equipment at the time of sale or lease,
   or consist of components which, when assembled, will have the character
   of machinery or equipment;
2. Be used in a manufacturing plant; and
3. Be necessary and integral to the manufacture of tangible personal property
   for sale or further manufacturing.5
   “‘Equipment’ means tangible personal property, other than machinery, industrial materials, and
   energy. The term ‘equipment’ includes durable devices and apparatuses that are generally designed
   for long-term continuous or repetitive use. The term also includes consumable supplies.” 6 Cylinder
   tanks are equipment, thereby satisfying the first prong of the test above.
   According to the facts presented by Taxpayer, the cylinder tanks at issue (including dewars, micro
   bulk tanks, an bulk tanks) are used to control, regulate, and safely expel the gases they contain. Thus,
   to the extent that cylinder tanks at issue are used at a manufacturing plant to hold compressed gases
   that are exempt under O.C.G.A. § 48-8-3.2 (i.e., to contain gas that is necessary and integral to
   manufacturing), then the tanks themselves are necessary and integral to the manufacture of tangible
   personal property for sale. Having met the three prongs of the above test, the cylinder tanks are
   exempt as equipment under O.C.G.A. § 48-8-3.2.
   Taxpayer, as the seller, bears the burden of proving that the sale is exempt from tax. “The burden of
   proving that a sale of tangible personal property is not a sale at retail shall be upon the person who
   makes the sale unless such person, in good faith, takes from the purchaser a certificate stating that
   the property is purchased for resale or is otherwise tax exempt.”7
   A properly completed certificate taken in good faith means a seller shall obtain a certificate:
   (1) That is fully completed, including, but not limited to, the name, address, sales tax number,
   and signature of the taxpayer when required;
   (2) In a form appropriate for the type of exemption claimed;
   (3) Claiming an exemption that was statutorily available on the date of the transaction in the
   jurisdiction where the transaction is sourced;
   (4) Claiming an exemption that could be applicable to the item being purchased; and
   (5) Claiming an exemption that is reasonable for the purchaser's type of business. 8
   Dealers must maintain records to support purchases and sales for a period of no less than three years. 9
   Rulings
4. The sale (including rentals/leases) of compressed gas cylinders (including dewars, micro bulk
   tanks, and bulk tanks) qualifies for exemption under O.C.G.A. § 48-8-3.2 if the compressed gases
   contained within the cylinders are exempt as either energy, industrial materials, or consumable
   supplies under O.C.G.A. § 48-8-3.2

5 Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(a).
6 Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(c).
7 O.C.G.A § 48-8-38(a).
8 O.C.G.A § 48-8-38(b).
9 O.C.G.A. § 48-8-52(a)(1)(D).

Georgia Letter Ruling: LR SUT-2016-03
Dated: February 15, 2016
Topic: Manufacturing Exemption and Documentation
Page 3 of 3

2. Taxpayer satisfies the burden of proving that sales (including rentals/leases) are exempt from tax
   when Taxpayer accepts from the purchaser a certificate of exemption that is fully completed, in a
   form appropriate for the type of exemption claimed, claiming an exemption that was statutorily
   available on the date of the transaction and in the jurisdiction where the sale is sourced, claiming
   an exemption applicable to the purchase, and claiming an exemption reasonable for the
   purchaser’s type of business. For audit purposes, Taxpayer must maintain books and records to
   support purchases and sales for a period of at least three years.
   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, this
   ruling may become invalid. Subsequent statutory or administrative rule changes or judicial
   interpretations of the statutes or rules upon which this ruling is based may subject similar future
   transactions to different tax treatment than that expressed in this ruling.