On February 11, 2015 the Georgia Tax Tribunal issued one of the most interesting Georgia rulings during the past decade. In the case of Inglett & Stubbs vs Commissioner of Revenue, the Tribunal held against the taxpayer on two separate issues. First, the Tribunal reaffirmed that contractors are consumers of the materials they purchase and are not generally retailers allowed to purchase items for resale. Second, and more importantly, the Tribunal affirmed that Georgia taxes items when them come to rest in Georgia unless they are held as inventory for resale. That is, Georgia does not have any type of “temporary storage” exemption rule that many states have.
Inglett & Stubbs, purchased machinery and construction material for use in construction projects in Afghanistan and other countries where the U.S. military had bases. Many large items were shipped directly to the overseas locations and these were not taxed in the U.S. Many other smaller items were sent to Inglett & Stubbs in Georgia where it has a warehouse and distribution facility. Many of the vendors charged Inglett & Stubbs sales tax on these items because Inglett & Stubbs could not provide any type of resale certificate. Over $1.9 million in sales tax was paid on these purchases. A refund claim for the tax paid was filed by the taxpayer and the Georgia DOR promptly denied the claim. The taxpayer appealed and had its hearing before the Tribunal.
To me, the holding in this case was completely predictable given the body of law and previous rulings. While this is a major decision by the Tribunal and one that dramatically impacts the taxpayer, I would have been more surprised if they had prevailed before the Tribunal. The issue that I think this case addresses is how the failure of companies to make strategic decisions around sales tax can be a very costly mistake. Very simply, had the taxpayer realized that tax was going to be due on the temporary storage of products in Georgia, they should have set up a temporary location in Tennessee which has an “import for export” exemption. Also, the company could have created a separate purchasing entity that would purchase these items “tax free’ from their suppliers and then exported them for sale to the construction company. Two very easy and totally legal solutions to avoid every penny of Georgia sales tax.
This case will likely be appealed to the Georgia Supreme Court. Stay tuned.
Ned Lenhart, CPA