Is a demolition company that prepares recovered scrap for sale a manufacturer eligible for Georgia's manufacturing sales-tax exemptions?

Plain-English summary

The taxpayer used cutting torches, skid steers, and track hoes to dismantle obsolete property at customer sites and prepare recovered scrap for sale to steel mills and local scrap yards. It charged no demolition fee; all income came from selling the recovered scrap. It identified NAICS 423930, Metal Scrap and Waste Merchant Wholesalers, as the best description of its activity.

The Department ruled that the business was not a manufacturer for Georgia's manufacturing exemptions. It was not classified within the specified manufacturing NAICS sectors or codes, and a business whose income came from selling scrap metal and waste would not generally be regarded as a manufacturer.

Because the taxpayer failed the manufacturer definition, it could not claim the machinery, equipment, industrial-material, or supply exemptions under O.C.G.A. § 48-8-3.2.

What this means for you

Demolition and scrap businesses

Processing material before resale does not automatically make a business a manufacturer. Georgia first looks to the statutory NAICS categories and whether the business is generally regarded as manufacturing.

Equipment purchasers

The use of heavy processing equipment did not change the taxpayer's business classification. Eligibility depends on the qualifying manufacturer and manufacturing activity, not simply on what a machine can do.

Common questions

Q: Did earning all revenue from scrap sales make the taxpayer a manufacturer?

A: No. The Department still classified the activity as scrap wholesaling rather than manufacturing.

Q: Did cutting and preparing scrap count as manufacturing?

A: Not for this taxpayer under the statutory manufacturer definition and its NAICS classification.

Q: Could its demolition equipment receive the manufacturing exemption?

A: No. Because the business was not a manufacturer, equipment and supplies used in its activity did not qualify for manufacturer-only exemptions.

Q: Can another scrap business rely on this ruling?

A: No. It is limited to the requesting business's NAICS code, revenue model, and activities.

Citations and references

Authorities:

• O.C.G.A. § 48-8-3.2(a)(10) -- manufacturer definition
• O.C.G.A. § 48-8-3.2 -- manufacturing exemptions
• O.C.G.A. § 48-8-30 -- 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-2016-20

Original ruling text

Date Issued: October 11, 2016
Georgia Letter Ruling: LR SUT-2016-20
Topic: Manufacturing
This letter is in response to your request for guidance on the application of Georgia sales and use exemptions extended
to manufacturers.
Facts Presented by Taxpayer
Taxpayer is a dismantling/demolition service provider. Using cutting torches, skid steers, and track hoes, Taxpayer
removes obsolete scrap from the customer’s site and prepares the removed scrap for sale to steel mills or local scrap
yards. Taxpayer does not receive monetary compensation for his demolition services. Taxpayer’s only income is
generated by the sale of recovered scrap. North American Industry Classification System (NAICS) code 423930,
Metal Scrap and Waste Merchant Wholesalers, best represents Taxpayer’s activities.
Issue
Is Taxpayer a manufacturer for purposes of Georgia’s sales and use tax exemptions?
Analysis
Sales and use tax is imposed on the retail purchase, retail sale, rental, storage, use, or consumption of tangible personal
property and on certain specific services.1 Exemptions apply to the sale, use, or storage of machinery and equipment
that are necessary and integral to the manufacture of tangible personal property and the sale, use, storage, or
consumption of industrial materials and 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.
“manufacturer” in the same manner:

r. 560-12-32-.62(2) (j) substantially define the term

“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:
(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
Having an NAICS code of 423930, Taxpayer is not classified as a manufacturer under the 2007 North American
Industrial Classification System. With the majority of Taxpayer’s income derived from the sale of scrap metal and
waste, Taxpayer would not generally be regarded as a manufacturer. Accordingly, Taxpayer does not meet the
statutory definition of a manufacturer.

1

O.C.G.A. § 48-8-30.
O.C.G.A. § 48-8-3.2.
3
O.C.G.A. § 48-8-3.2(a)(10).
2

Date Issued: October 11, 2016
Georgia Letter Ruling: LR SUT-2016-20
Topic: Manufacturing
Page 2 of 2

Ruling
Because Taxpayer is not classified as a manufacturer under the 2007 North American Industrial Classification System
and Taxpayer is primarily engaged in the sale of scrap metal and waste, 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.
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.