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Georgia Taxpayer Bears Burden of Tax-Free Sale

In a letter ruling (Georgia Letter Ruling No. LR SUT-2017-16, 11/30/2017) released on 02/19/2018, the Georgia Department of Revenue has ruled that the taxpayer will bear the burden of proof when a sale is made without tax charged. The only exception to this is if the taxpayer receives from the purchaser a properly executed exemption or resale certificate following Georgia’s good faith standard. In this case, to meet the good faith standard, the customer needed to be engaged in the business of selling repairs or repair parts and the customer needed to have a valid Georgia sales tax registration number to list on the certificate as the sales tax number. Additionally, the taxpayer could not accept an exemption certificate from the customer’s customer to support the exemption claim because the taxpayer transacts business with its customer, not the customer’s customer (a third party).

Facts

The taxpayer was a manufacturer of truck bodies built and installed on the customer’s chassis. The taxpayer maintained parts and service shops throughout the US that provide service including repairs for truck bodies including those of competitors. The taxpayer had a customer who was not registered for sales tax in Georgia that coordinated repairs for truck body owners. Once repairs were completed, the taxpayer would invoice the customer for repair labor and parts, and the customer would in turn invoice the owner. The customer only acted as the coordinator and did not use the truck being repaired.

Issue

Is the taxpayer able to accept a resale certificate from the customer or from the customer’s customer (the owner of the chassis) to substantiate that the taxpayer is not required to collect sales and use tax from the customer on such repair transactions in Georgia?

Analysis

Georgia levies a tax on the retail sale, use, or consumption of tangible personal property and on certain listed services. A retail sale is defined as any sale other than for the purpose of resale. All sales are subject to sales and use tax unless the opposite is established. The burden of proving that a sale is not at retail is upon the seller unless the seller, in good faith, accepts from the purchaser a certificate of exemption stating that the property is purchased for resale or otherwise is tax exempt.

Elements of good faith include the following:

Fully completed (name, address, sales tax number, signature) certificate from the purchaser
Form appropriate for the type of exemption claimed
Valid statutory exemption available on the transaction date where the transaction is sourced
Exemption applicable to the item purchased
Exemption that is customary for the purchaser’s type of business

A certificate is taken in good faith and relieves the seller from the burden of proof on sales made for resale when the seller obtains a properly executed certificate from the purchaser and the purchaser is truly engaged in the business of selling tangible personal property, has a valid sales tax registration number at the time of transaction which is listed on the certificate, and the seller has no reason to believe the purchaser does not intend to resell the item in the regular course of business.

Conclusion

The taxpayer could not in good faith accept a resale certificate from the customer because the customer cannot fully complete the certificate (sales tax registration number) and does not appear to be engaged in the business of transacting taxable sales. The taxpayer cannot in good faith accept exemption certificate from customer’s customer. The taxpayer is required to collect sales tax from the customer.

Contributor: Trisha Davidson

Tips for the Taxpayer

Georgia taxpayers should clearly examine each sales transaction where tax is not charged and confirm that the taxpayer can in good faith accept an exemption certificate from the purchaser to allow the sale to be made without tax charged. Consider the elements of a valid exemption certificate. Know what business the purchaser is engaged in from the good faith standpoint. Stay updated with the latest legislation and future notices. If doubt still exists, consult a tax professional for clarity and expertise or consider a letter ruling for your specific situation.

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