Does Georgia's manufacturing exemption cover potable-water chemicals and drinks, ice, coolers, and cups provided for employee and visitor hydration?

Plain-English summary

A manufacturer purchased sodium hypochlorite to make water potable for restrooms, kitchens, and showers. It also bought or rented bottled water, Gatorade, Sqwincher pops, ice, portable coolers, and disposable cups for employees and visitors throughout the plant. Use was optional, although the company educated employees about heat stress and displayed the temperature and heat index.

The Department ruled that all the listed purchases and rentals were subject to state and local sales and use tax. They did not qualify for Georgia's manufacturing machinery-and-equipment exemption because:

• they were not used, consumed, or expended in changing industrial materials into manufactured products;
• they were not used in, on, or together with manufacturing machinery or equipment; and
• on the presented facts, they were provided for employee and visitor comfort and convenience rather than being necessary and integral to manufacturing.

The fact that some items were consumable and others, such as coolers, were designed for repeated use did not change the outcome.

What this means for you

Manufacturers supplying employee hydration

Plant location alone does not make an item exempt. The Department examined what each product actually did in the manufacturing operation and found no process or machinery connection for these hydration and potable-water uses.

Safety and facilities teams

The ruling acknowledges that qualifying manufacturing equipment can include employee-safety items, but it did not treat these optional hydration products as qualifying safety equipment on the facts presented. Document any materially different operational or legal requirement before claiming an exemption.

Tax and purchasing departments

The ruling covers both purchases and rentals. Portable coolers remained taxable whether bought or rented, and the conclusion included state and local sales and use taxes.

Common questions

Q: Is sodium hypochlorite exempt because water-treatment chemicals can be consumable supplies?

A: Not here. The chemical made water potable for restrooms, kitchens, and showers; it was not used in manufacturing or with manufacturing equipment.

Q: Are bottled water and sports drinks exempt as employee-safety equipment?

A: No on these facts. Employees and visitors used them at their discretion, and the Department characterized the products as serving comfort and convenience rather than being necessary and integral to manufacturing.

Q: Does renting a water cooler change the answer?

A: No. The ruling applies to both purchased and rented portable coolers and says they are taxable.

Q: What other items were included?

A: Bottled water, Gatorade, Sqwincher pops, ice, portable coolers, and disposable cups, along with the potable-water sodium hypochlorite.

Q: Can another manufacturer rely on this ruling?

A: No. It is limited to the requesting taxpayer's uses and facts, and materially different safety or manufacturing connections could require a new analysis.

Citations and references

Statutes and regulations:

• O.C.G.A. § 48-8-3.2(a)(9)-(11) -- manufacturing, manufacturer, and manufacturing plant definitions
• O.C.G.A. § 48-8-3.2(b) -- machinery and equipment exemption
• Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(a), (2)(c), and (2)(i)-(k) -- consumable supplies, equipment, and manufacturing definitions
• Ga. Comp. R. & Regs. r. 560-12-2-.62(3) -- exemption requirements and necessary-and-integral test
• Ga. Comp. R. & Regs. r. 560-12-2-.104(4)(b)(1)(ii) -- business-provided bottled water and coolers

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2017-15

Original ruling text

Georgia Letter Ruling Number: LR SUT-2017-15
Topic: Manufacturing Exemption
Date Issued: October 4, 2017

This letter is in response to your request for guidance on the application of Georgia sales and use tax to certain
purchases made by [Redacted] (“Taxpayer”).
Facts as Provided by Taxpayer 1
Taxpayer is a manufacturer and supplier.
Taxpayer purchases sodium hypochlorite for drinking water disinfectant. The potable water produced (as a result of
the disinfectant) is used in restrooms, kitchens, and showers. Additionally, Taxpayer purchases the following items
for the hydration of its employees:
•
•
•

Bottled water
Gatorade
Sqwincher pops

•
•
•

Ice
Portable coolers 2
Disposable cups

These items are stored and used throughout the plant, and they are used and consumed by visitors to the facility as
well as the plant’s approximately [Redacted] hourly and salaried employees. Employees and visitors may use these
items at their discretion. Although Taxpayer does not restrict or mandate use of these items, Taxpayer does educate
employees regarding heat stress and the importance of staying hydrated. Moreover, Taxpayer displays the temperature
and heat index at the front entrance to the plant.
Issue
What is the proper application of sales and use tax to Taxpayer’s purchase of the listed items?
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. 3 O.C.G.A § 48-8-3.2
provides a sales and use tax exemption for the sale, use, or storage of machinery and equipment necessary and integral
to the manufacture of tangible personal property. 4 This exemption also applies to leases and rentals of such machinery
and equipment. 5
In order to qualify for this exemption, the property purchased or leased must:
1.

2.
3.

Have the character of machinery or equipment, or of repair or replacement parts to machinery
or equipment, at the time of sale or lease, or consist of components which, when assembled,
will have the character of machinery or equipment;
Be used at a manufacturing plant; and
Be necessary and integral to the manufacture of tangible personal property for sale, for
promotional use, or further manufacturing. 6

In this exemption, “equipment” means tangible personal property other than machinery, industrial materials, and
energy. Equipment includes durable devices and apparatuses that are generally designed for long-term continuous or
repetitive use as well as consumable supplies. Examples of equipment include cones, pallets, hand tools, and safety
1

Taxpayer provided information by e-mail on September 1, 2016, and October 19, 2016. Additional information is
available on Taxpayer’s website: [Redacted] (Last visited October 26, 2016).
2
Taxpayer purchases and rents water coolers.
3
O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), 48-8-30.
4
O.C.G.A. § 48-8-3.2, Ga. Comp. R. & Regs. r. 560-12-2-.62(1).
5
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(b).
6
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(a).

Georgia Letter Ruling Number: LR SUT-2017-15
Topic: Manufacturing Exemption
Date Issued: October 4, 2017
Page 2 of 3
devices. 7 As used in this definition, “consumable supplies” means tangible personal property, other than machinery,
industrial materials, packaging supplies, and energy, that is consumed or expended during the manufacture of tangible
personal property. The term includes but is not limited to water treatment chemicals for use in, on, or in conjunction
with machinery or equipment and items that are readily disposable. 8
In determining whether items are used, consumed or expended during the manufacture of tangible personal property,
the Department is guided by the following definition of “manufacture of tangible personal property” as follows:
a manufacturing operation, series of continuous manufacturing operations, or series of integrated
manufacturing operations engaged in at a manufacturing plant or among manufacturing plants 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
If property has the character of machinery or equipment and is used at a manufacturing plant, the property must also
be necessary and integral to manufacturing. When determining whether machinery or equipment is necessary and
integral to the manufacture of tangible personal property, the Department evaluates the facts and circumstances of
each case. 10 Machinery or equipment that does not qualify as “necessary and integral” to manufacturing includes that
which is not operated under the control of the manufacturer’s employees. 11 Machinery or equipment that qualifies as
“necessary and integral” to manufacturing includes that which is “used to provide safety for the employees working
at a manufacturing plant…including but not limited to safety machinery and equipment required by federal or state
law, gloves, ear plugs, face masks, protective eyewear, hard hats or helmets, or breathing apparatuses.” 12
The items at issue include tangible personal property that may be consumed, such as sodium hypochlorite for water
potability purposes, and drinks, cups, and other items for hydration purposes, as well as tangible personal property
that is designed for long-term continuous or repetitive use, such as water coolers. These items, however, are not used,
consumed, or expended during the manufacture of tangible personal property, nor are these items used in, on, or in
conjunction with manufacturing machinery or equipment. The products are not used in changing, processing,
transforming, or converting industrial materials into articles of tangible personal property for sale, for promotional
use, or further manufacturing. Rather, the items are provided by Taxpayer to employees and visitors for their comfort
and convenience. Because the above-listed items are used in non-manufacturing functions, the items at issue do not
have the character of equipment and are not necessary and integral to manufacturing. Since the items in question do
not fall within the scope of the manufacturing exemption, the purchase or rental of such items is subject sales and use
tax. 13

7

Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(c).
Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(a).
9
O.C.G.A. § 48-8-3.2(a)(9), Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(i) (for clarity purposes, the definition as stated
above omits the final sentence of the complete definition contained in the statute. The definition of “manufacture of
tangible personal property” can be found in its entirety at O.C.G.A. § 48-8-3.2(a)(9)). “Manufacture of tangible
personal property” is used synonymously with the term “manufacturing.” “Manufacturing plant” means any facility,
site, or other area where a manufacturer engages in the manufacture of tangible personal property. O.C.G.A. § 48-83.2(a)(11), Ga. Comp. R. & Regs. r. 560-12-2-.62(2)(k). “Manufacturer” means 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 business, or the location, 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. O.C.G.A. § 48-8-3.2(a)(10), Ga.
Comp. R. & Regs. r. 560-12-2-.62(2)(j).
10
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(d).
11
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(d)(1)(vi).
12
Ga. Comp. R. & Regs. r. 560-12-2-.62(3)(d)(2)(vi).
13
See Ga. Comp. R. & Regs. r. 560-12-2-.104(4)(b)(1)(ii) (bottled water, coolers, or other containers purchased by a
business that provides the water for no charge to its employees or customers is subject to sales and use tax).
8

Georgia Letter Ruling Number: LR SUT-2017-15
Topic: Manufacturing Exemption
Date Issued: October 4, 2017
Page 3 of 3

Ruling
Taxpayer purchases and/or rents sodium hypochlorite to make water potable, and bottled water, Gatorade, Sqwincher
pops, ice, portable coolers, and disposable cups for employees and visitors to remain hydrated. These items do not
have the character of equipment as defined by the manufacturing exemption and in addition are not necessary and
integral to manufacturing. Thus, the purchase or rental of the subject items is not exempt from state and local sales
and use tax.
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.