Are reusable portable metal racks exempt packaging supplies when a Georgia manufacturer uses them to store and ship finished rolls like pallets?

Plain-English summary

A manufacturer made packaging for food companies and used reusable portable metal racks for rolls of finished product. The racks briefly stored the rolls in the finished-goods warehouse and then served like pallets during shipment to customers. The manufacturer had been paying sales tax when buying the racks.

The Georgia Department of Revenue ruled that the racks were exempt packaging supplies. Georgia's manufacturing exemption expressly includes pallets and other materials used to package finished goods for sale or delivery, and the metal racks served the same function as traditional single-use pallets.

The exemption did not distinguish reusable packaging from single-use packaging and did not expressly require a packaging item to have only one purpose. The manufacturer could buy qualifying racks without tax using Form ST-5M.

What this means for you

Manufacturers

Reusable shipping fixtures can qualify as packaging supplies when they function like pallets or containers in preparing finished goods for sale or delivery. Reusability alone does not disqualify the item.

Packaging and logistics teams

The racks' brief use for finished-goods storage did not prevent exemption because they also packaged and carried the manufactured rolls for shipment. Document how the item moves finished goods from the plant's packaging or storage area into delivery.

Accountants and tax professionals

The ruling relies on the packaging-supplies definitions in O.C.G.A. § 48-8-3.2 and allows Form ST-5M. If an item serves both manufacturing and non-manufacturing purposes, separately examine the statute's more-than-one-third use rule for multiple-purpose machinery and equipment.

Common questions

Q: Are reusable shipping racks exempt in Georgia?
A: Yes on these facts. The racks were used like pallets to store and ship the manufacturer's finished product and qualified as packaging supplies.

Q: Must packaging supplies be single-use?
A: No. The Department said the exemption does not distinguish reusable packaging supplies from single-use supplies.

Q: Can the rack also be used for temporary storage?
A: Yes here. The rack's short use in the finished-goods warehouse did not defeat its packaging function for shipment.

Q: How does a manufacturer claim the exemption?
A: The ruling says the manufacturer may use Form ST-5M for qualifying purchases.

Q: Can another manufacturer rely on this ruling?
A: No. It is limited to the requesting taxpayer and facts, including how the racks were used in storage, packaging, and shipment.

Citations and references

Statutes and rule:

• O.C.G.A. §§ 48-8-1 and 48-8-30 (sales and use tax imposition)
• O.C.G.A. § 48-8-3.2(a)(9), (12), and (13) (manufacturing, packaging operation, and packaging supplies)
• O.C.G.A. § 48-8-3.2(b) (manufacturing and packaging exemption)
• O.C.G.A. § 48-8-3.2(d)(2) (multiple-purpose machinery and equipment)
• Ga. Comp. R. & Regs. r. 560-12-2-.62(e)(6) (Form ST-5M)

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2018-11

Original ruling text

Georgia Letter Ruling Number: LR SUT-2018-11
Topic: Manufacturing Equipment
Date Issued: October 24, 2018

This letter is in response to your request for guidance on the application of Georgia sales and use tax
to purchases of portable metal racks used in the manufacturing of tangible personal property.
Facts
[Redacted] (“Taxpayer”) is a manufacturing company with manufacturing plants in [Redacted] states.
Taxpayer manufactures packaging that it sells to food companies for the packaging of their
food products. The packaging Taxpayer sells to its customers is filled with the customer’s
product. The package filled product is then sold and delivered to grocery and/or like-kind stores.
One component of Taxpayer’s packaging and delivery process at its plants involves the use of
reusable portable metal racks. These metal racks are used for a short time in the finished goods
warehouse to store rolls of metalized manufacturing product prior to shipping. These metal racks
also double as a packaging component for these rolls because they are used in the same manner as
pallets used to ship Taxpayer’s product. Currently, Taxpayer is paying sales tax on these metal racks.
Issue
Is Taxpayer required to pay sales tax on the purchase of the item described above?
Analysis
Georgia levies and imposes a tax (subject to certain exemptions) on the retail purchase, retail sale,
rental, storage, use, or consumption of tangible personal property and on certain services.1
“Retail sale” or a “sale at retail” means any sale, lease, or rental for any purpose other than for
resale.2 “Sale” means any transfer of title or possession, transfer of title and possession, exchange,
barter, lease, or rental, conditional or otherwise, in any manner or by any means of any kind of
tangible personal property for a consideration.3 All sales, uses consumption distribution, and
storage are taxable until specifically exempt from taxation by the Georgia Code.
The Georgia Code provides a sales and use tax exemption for purchases and uses of
“packaging supplies” by manufacturers. “The sale, use, or storage of machinery or equipment which
is necessary and integral to the manufacture of tangible personal property and the sale, use, storage, or
consumption of industrial materials or packaging supplies shall be exempt from all sales and use
taxation.”4 Form ST-5M is used to claim this exemption.5 “Manufacture of tangible
personal property” used

O.C.G.A. §§ 48-8-1 and 48-8-30.
O.C.G.A. § 48-8-2(31).
3
O.C.G.A. § 48-8-3(33)(A).
4
O.C.G.A. § 48-8-3.2(b).
5
Ga. Comp. R. & Regs. r. 560-12-2-.62(e)(6).
1
2

Georgia Letter Ruling Number: LR SUT-2018-11
Topic: Manufacturing Equipment
Date Issued: October 24, 2018
Page 2 of 2

synonymously with the term “manufacturing” means a manufacturing operation . . . The term includes,
but is not limited to, . . . a packaging operation that occurs at a manufacturing plant. 6
“Packaging supplies” means materials, including, but not limited to, containers, labels, sacks, boxes,
wraps, fillers, cones, cores, pallets, or bags, used in a packaging operation solely for packaging tangible
personal property. 7 “Packaging operation” means bagging, boxing, crating, canning, containerizing,
cutting, measuring, weighing, wrapping, labeling, palletizing, or other similar processes necessary to
prepare or package manufactured products in a manner suitable for sale or delivery to customers as
finished goods or suitable for the transport of work in process at or among manufacturing plants for
further manufacturing, and the movement of such finished goods or work in process to a storage or
distribution area at a manufacturing plant. 8
The exemption for “packaging supplies” used by a manufacturer does not differentiate between
reusable packaging supplies and single-use packaging supplies. 9 Additionally, the exemption does not
expressly require packaging supplies to serve a single purpose. 10 While exemptions from taxation are
strictly construed, the metal racks at issue serve the same function and purpose as traditional singleuse pallets, and pallets are expressly exempt as qualifying “packaging supplies”. 11 Thus, based on the
facts presented above, the reusable portable metal racks are within the scope of the exemption provided
to manufacturers of tangible personal property.
Ruling
Taxpayer, based on the facts presented, is not required to pay sales and use tax on the reusable portable
metal racks described above. Taxpayer may use Form ST-5M to make qualifying purchases without
payment of tax.
Conclusion
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. The facts herein are
those presented by the taxpayer and the Department accepts them as true for this ruling. If the facts
presented herein change, are not true, are different, or material facts have been omitted, the conclusions
reached in this ruling may change. In addition, subsequent statutory or administrative rule changes or
judicial interpretations of the statutes or rules upon which this advice is based may subject similar
future transactions to a different tax treatment than that expressed in this ruling.

O.C.G.A. § 48-8-3.2(a)(9).
O.C.G.A. § 48-8-3.2(a)(13).
8
O.C.G.A. § 48-8-3.2(a)(12).
9
O.C.G.A. § 48-8-3.2(b).
10
With respect to machinery and 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 purpose for which an item of tangible personal property is used more than one-third
of the time will prevail for purposes of determining the eligibility for exemption. O.C.G.A. § 48-8-3.2(d)(2).
11
O.C.G.A. § 48-8-3.2(a)(13).
6
7