Is an on-site document-shredding service a manufacturer eligible to buy its truck-mounted shredding and compacting equipment tax-free?

Plain-English summary

The taxpayer brought trucks to customer sites, removed office documents, shredded and compacted them inside truck-mounted systems, then further compacted and baled the paper at its own premises for sale to recyclers. Its trucks included shredders, compactors, conveyors, a specialized body, side lifts, and related electrical and hydraulic equipment. Most revenue came from document-management services, and the company used NAICS 561990, All Other Support Services.

The Department ruled that the taxpayer was not a manufacturer. It was outside the specified manufacturing NAICS classifications and was generally regarded as a service provider because document-management services produced most of its revenue.

As a result, the business could not claim manufacturing exemptions for the shredding equipment. It was the ultimate user of the tangible property employed in its service and was responsible for the sales or use tax on that property.

What this means for you

Document-destruction companies

Transforming paper into shredded and baled material for resale did not overcome the taxpayer's primary service activity and support-services classification.

Mobile processing businesses

Installing machinery on a truck does not itself establish manufacturing status. Georgia evaluates the operator's classification and primary business before testing particular equipment.

Common questions

Q: Why was the shredding company a service provider?

A: Its NAICS code was a support-services code and most revenue came from document-management services.

Q: Did selling shredded paper make it a manufacturer?

A: No. Those sales were a minority of revenue and did not change the Department's overall classification.

Q: Was the truck-mounted shredding equipment exempt?

A: No. Without manufacturer status, the business was the taxable consumer of the equipment used to provide its service.

Q: Can another shredding business rely on this ruling?

A: No. It is limited to this company's revenue mix, NAICS classification, equipment, and operations.

Citations and references

Authorities:

• O.C.G.A. § 48-8-3.2(a)(10), (b) -- manufacturer definition and manufacturing exemption
• O.C.G.A. § 48-8-63 -- service provider as consumer
• O.C.G.A. § 48-8-30(a) -- sales and use tax imposition
• Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(j) -- manufacturer definition

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2016-19

Original ruling text

Date Issued: October 11, 2016
Georgia Letter Ruling: LR SUT-2016-19
Topic: Manufacturing
This letter is in response to your request for guidance on the application of Georgia sales and use tax to equipment
required to shred and compact office documents.
Facts Presented by Taxpayer
The Taxpayer’s business involves the on-site shredding of office documents for customers and the sale of the shredded
paper to paper brokers.
For on-site shredding, Taxpayer arranges for shredding trucks and associated electrical equipment and hydraulics to
arrive at the customer’s premises at a pre-arranged time. Documents for shredding are removed from the customer’s
premises to the parked shredding truck where the documents are shredded and compacted in the shredding truck. The
shredded and compacted paper is then removed to Taxpayer’s premises for further compacting, baling and ultimate
sale to paper recyclers.
The shredding trucks include a bare chassis with an upgraded transmission necessary to provide the power take-off
for operating the shredding equipment. Shredding trucks are required to be registered for operation on public
highways. The following machinery/equipment is then installed into the truck chassis and directly used in the
shredding operation:
1.
2.
3.
4.
5.
6.

Shredding equipment
Compactor
Conveyor
Truck body
Side lift; and,
Associated electrics and hydraulics

Taxpayer’s North American Industry Classification System (NAICS) code is 561990, All Other Support Services.
Most of Taxpayer’s revenues are derived from providing services: [Redacted] % of revenues are from document
management services and [Redacted] % of revenues are from the sale of shredded paper.
Issue
Is Taxpayer a manufacturer for purposes of Georgia’s sales and use tax exemptions?
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, certain enumerated services, and utilities. 1 Exemptions apply to the
sale, use, or storage of machinery and equipment that is necessary and integral to the manufacture of tangible personal
property and the sale, use, storage, or consumption of industrial materials or packaging supplies. To qualify for such
exemption, machinery, equipment, industrial materials, or supplies must be used in the manufacture of tangible
personal property. In other words, the machinery, equipment, industrial materials, or supplies must be used by a
manufacturer.2
O.C.G.A. § 48-8-3.2(a) and Ga. Comp. R. & Regs. r. 560-12-32-.62(2)(j) substantially define the term “manufacturer”
in the same manner:
“Manufacturer” means a person or business, or a location of a person or business, that is engaged in
the manufacture of tangible personal property for sale or further manufacturing. To be considered a
manufacturer, the person or business, or the location of a person or business, must be:

1
2

O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), and 48-8-30(a).
O.C.G.A. § 48-8-3.2(b).

Date Issued: October 11, 2016
Georgia Letter Ruling: LR SUT-2016-19
Topic: Manufacturing
Page 2 of 2
(A) Classified as a manufacturer under the 2007 North American Industrial Classification
System Sectors 21, 31, 32, or 33, or North American Industrial Classification System
industry code 22111 or specific code 511110; or
(B) Generally regarded as being a manufacturer.
Businesses that are primarily engaged in providing personal or professional services or in the
operation of retail outlets, generally including, but not limited to, grocery stores, pharmacies,
bakeries, or restaurants, are not considered manufacturers.3
Unlike sales of tangible personal property, which are generally presumed to be taxable, sales of a service are not
subject to tax unless the service is specifically designated as taxable. Generally, a service provider is the ultimate
consumer of the tangible personal property used in providing the service and is, as such, responsible for the tax on
such property.4
Taxpayer is not classified as a manufacturer under the NAICS Sectors 21, 31, 32, or 33, or NAICS industry code
22111 or specific code 511110. Since Taxpayer is primarily engaged in the provision of document management
services, Taxpayer is generally regarded as a service provider rather than a manufacturer.
Ruling
Because Taxpayer is not classified as a manufacturer under the 2007 North American Industrial Classification System
and Taxpayer is primarily engaged in providing document management services, Taxpayer is not a manufacturer under
O.C.G.A. § 48-8-3.2 and, thus, does not qualify for the sales and use tax exemptions applicable to manufacturers.
Further, as Taxpayer uses the machinery at issue to provide a service, Taxpayer is the ultimate user of the tangible
personal property and is responsible for the tax on such property.
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
4

O.C.G.A. § 48-8-3.2(a)(10).
See O.C.G.A. § 48-8-63.