Are an MLM distributor's annual renewal fee and optional online-business-tools and personal-website fee subject to Georgia sales tax?

Plain-English summary

The MLM's renewal fee was a payment for business status and benefits, not for property; distributors had no minimum purchase and the fee did not credit future purchases. Its magazine was incidental and was also sent to customers. Optional 24/7 business-tracking tools and personal websites were electronic services. The Department ruled that neither fee was taxable.

Common questions

Q: Did the included magazine make the renewal fee taxable?

A: No. It was incidental to the right to conduct business and receive benefits.

Q: Are the online tools taxable software?

A: No on these facts, because access was delivered electronically with no tangible property.

Citations and references

• O.C.G.A. § 48-8-2(31) -- retail sale
• O.C.G.A. § 48-8-3(91) and Ga. Comp. R. & Regs. r. 560-12-2-.111 -- electronic products

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2016-14

Original ruling text

Date Issued: July 11, 2016
Georgia Letter Ruling: LR SUT-2016-14
Topic: Multi-level Marketing - Fees

This letter is in response to your request for guidance on the application of Georgia sales and use tax to certain fees
charged by [Redacted] (“Taxpayer”).
Facts Presented by Taxpayer
Taxpayer sells products through a multi-level network of independent distributors. Taxpayer is considered an “MLM”
or multi-level marketer. Taxpayer’s only physical location is out of state. Taxpayer charges sales tax based upon the
address to which it ships each product, and tax is assessed based on the suggested retail price of a product. Taxpayer
files one consolidated sales tax return on behalf of itself and its distributors.
Distributors are required to renew their status annually. The annual renewal fee is paid by each distributor to remain
in “active” status. All “active” distributors receive a magazine on a quarterly basis and maintain a wholesale discount
on products purchased. Distributors earn a percentage discount off the retail price on the products purchased based on
the distributor’s volume of products purchased. Active distributors are also eligible to receive distributor business
support services and access to the Taxpayer’s website.
Customers are not required to pay a renewal fee, yet customers also receive the quarterly magazine. Additionally,
customers also may be eligible to receive a percentage discount off the retail price on the products purchased based
on varying promotions.
Distributors have the option of purchasing the online services and personal website, sold as a bundle. The distributor
online service provides a distributor with immediate, 24/7 access to information on all activity on the distributorship
and online tools to track and manage the business. A personal website allows a distributor to give product
presentations through a mobile device. A personal website also enables a distributor to add customers and downline
distributors to his own shopping cart and online sponsoring.
Issues

1. Are charges by Taxpayer to renew distributor status subject to sales and use tax in Georgia?
2. Are charges by Taxpayer for the online services and personal website subject to sales and use tax in Georgia?
   Analysis
   Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
   use, or consumption of tangible personal property and on certain services. 1 “Retail sale” means a sale of tangible
   personal property or taxable services to any person other than for resale. 2
   Distributor Renewal Fees
   Taxpayer’s distributors pay a fee for the right to purchase Taxpayer’s products for resale and for the possibility of
   receiving additional discount benefits. Distributors are not required to purchase a minimum amount of Taxpayer’s
   products, and the distributor fee is not applied toward future purchases. While a distributor with active status receives
   a company magazine, the same promotional magazine is provided to all customers. This magazine is incidental to the
   underlying transaction, a payment for the right to conduct business and receive benefits. Since the payment of the
   distributor renewal fee does not include the sale of tangible personal property or any service enumerated by law,
   Taxpayer’s fees are not subject to sales and use tax.

1
2

O.C.G.A. §§ 48-8-1 and 48-8-30(a).
O.C.G.A. § 48-8-2(31).

Date Issued: July 11, 2016
Georgia Letter Ruling: LR SUT 2016-14
Topic: Multi-level Marketing - Fees
Page 2 of 2

Online services and Website Fees
Only sales of tangible personal property and certain services are subject to sales and use tax. Digital products that are
delivered electronically, i.e., by means other than tangible storage media, are not subject to sales and use tax.3
Accordingly, a charge for access to a website and online services for tracking data and improving sales performance
is not the sale of tangible personal property or a taxable service.
Rulings
1.

Taxpayer’s charges to renew distributor status are not subject to sales and use tax in Georgia. A charge for the
right to sell products and receive discounts is not the sale of tangible personal property or services as contemplated
in Georgia statutes or regulations, and thus would not be subject to Georgia sales and use tax.

2.

Taxpayer’s charges for the online services and personal website are not subject to sales and use tax in Georgia
since they are charges for digital products or services delivered electronically and not charges for tangible personal
property or taxable services.

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.

3

O.C.G.A. § 48-8-3(91); Ga. Comp. R. & Regs. r. 560-12-2-.111.