Can a printer qualify as a Georgia manufacturer, and can its purchase or lease of a copier receive the manufacturing machinery exemption?

Plain-English summary

A copier lessor served printing and design companies, some classified within manufacturing NAICS Sector 32. It asked whether those printers could be manufacturers and whether their copier purchases or leases could qualify for Georgia's manufacturing machinery-and-equipment exemption.

The Department gave conditional answers:

• A printer may be a manufacturer if it manufactures tangible personal property for sale or further manufacturing at a manufacturing plant.
• A copier may qualify if it has the character of machinery or equipment, is used at that plant, and is necessary and integral to the manufacturing process -- for example, to change, process, or convert industrial materials into printed products.
• An administrative copier does not qualify. Georgia's regulation expressly excludes administrative machinery and equipment, including copiers and office supplies.

For a copier with both qualifying production use and nonqualifying use, its substantial purpose controls. The ruling states that use more than one-third of total operating time can establish a substantial purpose, with other measures such as production count also potentially relevant.

The lessor must collect tax unless it accepts a properly completed Form ST-5M in good faith. It should review completeness, NAICS code, the lessee's business, the copier's characteristics, and whether the claimed manufacturing use is reasonable.

What this means for you

Printers and design companies

Industry classification alone is not enough. The business must actually manufacture tangible goods at a plant, and the copier must serve production rather than general administration.

Copier lessors and dealers

Form ST-5M does not eliminate the good-faith review. The claimed exemption must be legally available, plausible for the machine, and reasonable for the customer's business and use.

Multipurpose copier users

Track production and office use. The substantial-purpose rule decides mixed-use equipment, and the ruling identifies more than one-third of use as one possible measure.

Common questions

Q: Is every commercial printer a manufacturer?

A: No. It may qualify if it is engaged at a manufacturing plant in making tangible personal property for sale or further manufacturing.

Q: Is every copier used by a printer exempt?

A: No. The copier must be necessary and integral to manufacturing. Administrative use is expressly nonqualifying.

Q: Can a mixed-use copier qualify?

A: Potentially. Its substantial purpose controls; the ruling cites more than one-third of use, or another suitable production measure, as a possible test.

Q: What certificate should the lessor obtain?

A: Form ST-5M, Certificate of Exemption, properly completed and accepted in good faith.

Q: Can another lessor rely on this ruling?

A: No. It is limited to the requesting lessor's transactions and requires a facts-and-circumstances review for each lessee and copier.

Citations and references

Authorities:

• O.C.G.A. § 48-8-3.2(a)(3), (7), (10), (11), and (16) -- relevant manufacturing definitions and substantial purpose
• O.C.G.A. § 48-8-3.2(b), (d) -- machinery/equipment exemption and multipurpose property
• O.C.G.A. § 48-8-38(a)-(b) -- good-faith exemption certificates
• Ga. Comp. R. & Regs. r. 560-12-2-.62(3), (6)(a) -- manufacturing rules and Form ST-5M

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2017-06

Original ruling text

Georgia Letter Ruling: LR SUT-2017-06
Dated: February 24, 2017
Topic: Manufacturing Exemptions
This letter is in response to your request for guidance on the application of Georgia sales and use tax to copier machine
leases by [Redacted] (“Taxpayer”).
Facts Presented by Taxpayer
Taxpayer is in the leasing business. As part of that business, it leases copier machines to other businesses, including
printing and design companies. Some of those lessees are classified under North American Industry Classification
System Sector 32 which includes printing and related support activities. Consequently, such lessees claim to be
engaged in manufacturing and have a manufacturing exemption.
Issues
1.

Is a printer a manufacturer who can qualify for the sales and use tax manufacturing exemption?

2.

Would a copier purchased or leased by a printer qualify for the sales and use tax manufacturing exemption?

Analysis
Georgia levies and imposes a tax (subject to certain exemptions) on the retail purchase, retail sale, storage, use, or
consumption of tangible personal property and certain enumerated services.1 “Retail sale” means any sale, lease, or
rental for any purpose other than for resale, sublease, or subrent. 2 Thus, a lease of tangible personal property is
generally a taxable sale unless an exemption applies.
Manufacturing Exemption
Georgia law provides a sales and use tax exemption for the sale, use, or storage of machinery or equipment which is
necessary and integral to the manufacture of tangible personal property. 3 To be considered manufacturing machinery
or equipment under the exemption, the purchased or leased property must (1) have the character of machinery or
equipment, (2) be used at a manufacturing plant, and (3) be necessary and integral to the manufacture of tangible
personal property for sale, for promotional use, or further manufacturing.4
For determining the character of the property, “equipment” means tangible personal property, other than machinery
and industrial materials. The term includes durable devices and apparatuses that are generally designed for long-term
continuous or repetitive use, such hand tools, molds, dies, waxes, jigs, patterns, and conveyors.5 In this context,
“machinery” is an assemblage of parts that transmits force, motion, and energy one to the other in a predetermined
manner to accomplish a specific objective.6 Based on the facts presented, it appears that some of the copiers leased by
Taxpayer could be machinery or equipment.
A “manufacturing plant” is any facility, site, or other area where a manufacturer engages in the manufacture of tangible
personal property.7 A “manufacturer” is 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 must be classified
as a manufacturer under the 2007 North American Industry Classification System Sectors 21, 31, 32, or 33, or North
American Industrial Classification System industry code 22111 or specific code 511110, or generally regarded as

1

O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), and 48-8-30(a).
O.C.G.A. § 48-8-2(31).
3
O.C.G.A. § 48-8-3.2(b).
4
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(a).
5
O.C.G.A. § 48-8-3.2(a)(3).
6
O.C.G.A. § 48-8-3.2(a)(7).
7
O.C.G.A. § 48-8-3.2(a)(11).
2

Georgia Letter Ruling: LR SUT-2017-06
Dated: February 24, 2017
Topic: Manufacturing Exemptions
Page 2 of 3
being a manufacturer.8 The term “manufacture of tangible personal property” means a manufacturing operation
engaged in at a manufacturing plant to change, process, transform, or convert industrial materials by physical or
chemical means into articles of tangible personal property for sale, for promotional use, or for further manufacturing
that have a different form, configuration, utility, composition, or character. 9 It is reasonable to conclude that those
lessees who fall under North American Industry Classification System Sector 32 would be manufacturers if they are
engaged in the manufacture of tangible personal property at a manufacturing plant.
An evaluation of the third prong of the exemption, whether machinery or equipment is necessary and integral to the
manufacture of tangible personal property, is based on the facts and circumstances presented by each lessee. Usually,
machinery or equipment qualifies as necessary and integral to the manufacture of tangible personal property if it is
used at a manufacturing plant to mix, measure, clean, or otherwise treat, prepare, or store industrial materials for
further manufacturing or if it is used to test or protect the quality of the manufactured product. Conversely, machinery
or equipment does not qualify as necessary and integral to the manufacture of tangible personal property if it is used
as administrative machinery or equipment, including copiers, facsimile machines, and office supplies.10
For machinery or equipment that has multiple purposes, some purposes necessary and integral to the manufacture of
tangible personal property and some purposes not necessary and integral to the manufacture of tangible personal
property, the substantial purpose of such machinery or equipment will prevail for purposes of determining the
eligibility for exemption.11 The substantial purpose of machinery or equipment can be the purpose for which that
machinery or equipment is used more than one-third of the time of the total amount of time that the item is in use.12
Here, based on the limited facts presented, it is possible that a copier leased by Taxpayer could be equipment used in
a manufacturing plant and that such equipment is necessary and integral to the manufacture of tangible personal
property. For example, in cases where printing and design companies are leasing the equipment to change, process,
or convert industrial materials into articles of tangible personal property for sale or further manufacturing, the lease
of the equipment may be exempt. Conversely, if a manufacturer or other business is using a copier as an administrative
tool, the lease of the equipment would subject to tax.
Proof of Exemption
All sales of a retailer are subject to sales and use tax unless the contrary is established. The burden of proving that a
sale of tangible personal property is not a taxable sale is on the seller unless that seller takes, in good faith, from the
purchaser a certificate stating that the property is tax exempt. 13
In order for the seller to accept a properly completed certificate in good faith and be relieved of the burden of proof,
the certificate must meet the following criteria:
(1) Be fully completed, including, but not limited to, the name, address, sales tax number, and signature of the
taxpayer when required;
(2) Be in a form appropriate for the type of exemption claimed;
(3) Claim an exemption that is statutorily available on the date of the transaction in the jurisdiction where the
transaction is sourced;
8

O.C.G.A. § 48-8-3.2(a)(10).
O.C.G.A. § 48-8-3.2(a)(7). Research and development activities are not considered the manufacture of tangible
personal property. Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(a).
10
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(d)(1)(v). Additionally, machinery or equipment does not qualify as
necessary and integral to the manufacture of tangible personal property if it is not operated under the control of the
manufacturer’s employees or other persons under the manufacturer’s direction and control. Ga. Comp. R. & Regs. r.
560-12-2-.62(3)(d)(1)(vi).
11
O.C.G.A. § 48-8-3.2(d).
12
O.C.G.A. § 48-8-3.2(a)(16). Alternatively, the substantial purpose of machinery or equipment may be measured,
instead of in time, in terms of other applicable criteria, such as the number of items produced.
13
O.C.G.A. § 48-8-38(a).
9

Georgia Letter Ruling: LR SUT-2017-06
Dated: February 24, 2017
Topic: Manufacturing Exemptions
Page 3 of 3
(4) Claim an exemption that could be applicable to the item being purchased; and
(5) Claim an exemption that is reasonable for the purchaser’s type of business. 14
Accordingly, any person making a sale or lease of machinery or equipment that is necessary and integral to the
manufacture of tangible personal property must collect sales tax unless such person, in good faith, accepts from the
purchaser or lessee a properly completed Form ST-5M Certificate of Exemption.15
Given the facts, accepting a Certificate in good faith requires the Taxpayer to review the Certificate for completeness
and accuracy. Taxpayer should ensure that a purchase qualifies for the exemption based on the NAICS code provided
on the Certificate. Moreover, Taxpayer should consider the characteristics of copier being leased, the nature of the
business of the lessee, and the other attributes of the lease to draw a reasonable conclusion as to whether the transaction
qualifies for the manufacturing exemption.
Rulings
1.

A printer might be a manufacturer that qualifies for the sales and use tax manufacturing exemption, provided that
the printer is engaged at a manufacturing plant in the manufacture of tangible personal property for sale or further
manufacturing.

2.

The purchase or lease of a copier machine by a printer may qualify for the sales and use tax manufacturing
exemption depending on the facts and circumstances of the transaction. A copier machine has the character of
machinery or equipment and may be purchased or leased tax exempt if it will be used at a manufacturing plant
and will be necessary and integral to the manufacture of tangible personal property. The purchase or lease of a
copier machine by a manufacturer for administrative use is not tax exempt.
Taxpayer, as a lessor, has the burden of proving that the lease of a copier is not a taxable sale unless Taxpayer
takes, in good faith, from the lessee a certificate stating that the transaction is tax exempt. To satisfy this burden,
Taxpayer should review a Form ST-5M Certificate of Exemption for completeness as well as consider whether
the manufacturing exemption could be applicable to the item being leased and whether the manufacturing
exemption is reasonable for the lessee’s type of business.

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.

14
15

O.C.G.A. § 48-8-38(b).
Ga. Comp. R. & Regs. r. 560-12-2-.62(6)(a).