News and Insights

Georgia Governor Signs Bills Expanding Manufacturing Machinery Exemptions and Capping Sales Tax on Energy Consumed in Manufacturing

Tax Development May 29, 2008

Governor Sonny Perdue signed into law House Bill 237, which was sponsored by Georgia State Representative Chuck Martin, a Director in the Firm’s Atlanta office. This legislation dramatically expands the sales and use tax exemption for manufacturing machinery and equipment and is effective January 1, 2009. This bill eliminates the requirement that manufacturing machinery, equipment, and related components must be used “directly” in the manufacturing process and now requires that such machinery, equipment, and related components be “necessary and integral” to the manufacture of tangible personal property.

The new legislation clearly expands the current exemption to include machinery and equipment that indirectly support the manufacturing process. Historically, Georgia has applied the so-called “Ohio-Georgia” rule that requires that manufacturing machinery must be used directly in the process and must cause a chemical or physical change to raw material or materials, where “the form or composition of the material or materials is significantly changed.” The new legislation abandons the historical “Ohio-Georgia” rule and adopts the “Integrated Plant Theory” where manufacturing machinery and equipment are exempt if the underlying use is necessary and integral to the claimants’ manufacturing operations, despite the fact that such machinery and equipment do not directly produce a significant chemical or physical change to the raw materials.

Additionally, the “direct use” limitation no longer applies to the exemptions for qualified primary material handling equipment and machinery used in remanufacturing aircraft engines, while the exemption for qualified pollution control machinery and equipment is expanded to now include any repair, replacement, or component parts for such machinery and equipment.

Finally, House Bill 237 eliminates the $150,000 per item sales price cap on purchases of repair or replacement parts, molds, dies, tooling, etc., which are necessary and integral to the manufacturing process.

The Governor also signed into law House Bill 272, which was co-sponsored by Chuck Martin. This legislation provides for a temporary, partial exemption from the state’s sales and use tax on the sale or use of certain fuels used directly or indirectly in the manufacturing or processing of tangible personal property for resale. Qualifying fuel includes natural and artificial gas, No. 2 and No. 6 fuel oils, propane, petroleum coke or coal, and also includes the fuel cost recovery component of retail electric rates for purchased electricity.

House Bill 272 applies to purchases made between July 1, 2008 though December 31, 2010 and is applicable only to state-level sales and use taxes.

If you have any questions regarding the above information, please contact Mr. Chuck Martin, Director, of the Ryan Atlanta office, at 404.365.0922. Mr. Martin can also be reached via e-mail.