Bill Text: GA HB375 | 2009-2010 | Regular Session | Introduced
Bill Title: Sales and use tax; obligation for payment by contractors; further define
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2009-02-12 - House Second Readers [HB375 Detail]
Download: Georgia-2009-HB375-Introduced.html
09 LC 18
8004
House
Bill 375
By:
Representative O`Neal of the
146th
A
BILL TO BE ENTITLED
AN ACT
AN ACT
To
amend Part 2 of Article 1 of Chapter 8 of Title 48 of the Official Code of
Georgia Annotated, relating to imposition, rate, collection, and assessment of
sales and use taxes, so as to further define the obligation for the payment of
sales and use taxes by contractors furnishing tangible personal property and
services; the duties of sellers of tangible property to such contractors; to
provide for procedures, conditions, and limitations; to provide an effective
date; to repeal conflicting laws; and for other purposes.
BE
IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:
SECTION
1.
Part
2 of Article 1 of Chapter 8 of Title 48 of the Official Code of Georgia
Annotated, relating to imposition, rate, collection, and assessment of sales and
use taxes, is amended by revising Code Section 48-8-63, relating to sales and
use tax provisions dealing with contractors, to read as follows:
"48-8-63.
(a)
As used in this Code section, the
term:
(1)(A)
'Fixture' means an item that is an accessory to a building, other structure, or
to land, that retains its separate identity upon installation, but that is
permanently attached to real property. Fixtures include such items as wired
lighting, kitchen or bathroom sinks, furnaces, central air-conditioning units,
elevators or escalators, or built-in cabinets, counters, or
lockers.
(B)
In order for an item to be considered a fixture, it is not necessary that the
owner of the item also own the real property to which the item is attached. A
retained title provision in a sales contract or in an agreement that is
designated as a lease but is in substance a conditional sales contract is not
determinative of whether the item involved is or is not a fixture. Similarly,
the fact that a lessee or licensee of real property rather than the lessor or
owner of real property enters into a contract for an item to be permanently
attached to the real property does not prevent that item from being classified
as a fixture.
(C)
The determination of whether an item is a fixture depends upon a review of all
the facts and circumstances of each situation. Among the relevant factors that
determine whether a particular item is a fixture are:
(i)
The method of attachment. Items that are screwed or bolted in place, buried
underground, installed behind walls, or joined directly to a structure's
plumbing or wiring systems are likely to be classified as fixtures. Attachment
in such a manner that removal is impossible without causing substantial damage
to the underlying real property indicates that an item is a
fixture;
(ii)
Intent of the property holder in having the item attached. If the property
holder who causes an item to be attached to real property intends that the item
will remain in place for an extended or indefinite period of time, that item is
more likely to be a fixture. That intent may be determined by reviewing all of
the property holder's actions in regard to the item, including how the item is
treated for purposes of ad valorem and income tax purposes, including whether a
property owner reports the value of the item for purposes of ad valorem taxation
of real property and depreciates the item for tax and financial accounting
purposes as real property;
(iii)
Real property law. If an interest in an item arises upon acquiring title to the
land or building, the item is more likely to be considered a
fixture;
(iv)
Customization. If items are custom designed or custom assembled to be attached
in a particular space, they are more likely to be classified as fixtures.
Customization indicates an intent that the items are to remain in place
following installation;
(v)
Permits and licensing. If installation of an item requires a construction
permit or licensing of the contractor under statutes or regulations governing
the building trades, that item is more likely to be regarded as a fixture;
and
(vi)
Legal agreements. The terms of any purchase agreement, deed, lease, or other
legal document pertaining specifically to an item may be relevant in determining
whether that item is a fixture of real property.
(D)
The term 'fixture' does not include the following items, whether or not such
items are attached to real property in a permanent manner:
(i)
Titled property; or
(ii)
Machinery or equipment.
(2)(A)
'Machinery or equipment' means property that is intended to be used in
manufacturing, processing, fabricating, packaging, moving, or otherwise handling
tangible personal property for sale or other commercial use, in the performance
of commercial services, or for other purposes not related to a real property
improvement and may, by its nature, be attached to the real property but which
does not lose its identity as a particular piece of machinery and
equipment.
(B)
'Machinery or equipment' generally does not include junction boxes, switches,
conduits, wiring, valves, pipes, and tubing incorporated into the electrical,
cabling, plumbing, or other structural systems of fixed works, buildings, or
other structures, whether or not such items are used solely or partially in
connection with the operation of machinery and equipment.
(C)
'Machinery or equipment' serves a particular commercial activity that is carried
on at a location rather than serving general uses of land or a structure and
generally includes items such as conveyor systems, printing presses, drill
presses, or lathes.
(D)
'Machinery or equipment' does not include items such as heating and
air-conditioning system components or water heaters because they are integrated
into the structure or real property and retain their usefulness no matter what
activity is carried on at the site.
(3)
'Nonresident
'nonresident
subcontractor' means a person who does not have a bona fide place of business in
Georgia through the maintaining of a permanent domicile or business facility
engaged in contracting real property work and who contracts with a prime or
general contractor to perform all or any part of the contract of the prime or
general contractor or who contracts with a subcontractor who has contracted to
perform any part of the contract entered into by the prime or general
contractor.
(4)
'Real property' means land, improvements to land, and fixtures.
(5)(A)
'Real property contract' means an agreement, oral or written, whether on a lump
sum, time and materials, cost plus, guaranteed price, or any other basis,
to:
(i)
Erect, construct, alter, repair, or maintain any building, other structure,
road, project, development, or other real property improvement;
(ii)
Excavate, grade, or perform site preparation for a building, other structure,
road, project, development, or other real property improvement; or
(iii)
Furnish and install tangible personal property that becomes a part of or is
directly wired or plumbed into the central heating system, central
air-conditioning system, electrical system, plumbing system, or other structural
system that requires installation of wires, ducts, conduits, pipes, vents, or
similar components that are embedded in or securely affixed to the land or a
structure thereon.
(B)
The term 'real property contract' does not include:
(i)
A contract for the sale or for the sale and installation of tangible personal
property such as machinery and equipment; or
(ii)
A contract to furnish tangible personal property that will be installed or
affixed in such a way as to become a fixture or real property improvement if the
person furnishing the property has not also contracted to affix or install
it.
(C)
A contract is a real property contract if described in subparagraph (A) of this
paragraph, whether or not such agreement also involves providing property or
services that would not be considered improvements to real property. See
subsection (h) of this Code section for a discussion of such mixed
contracts.
(D)
A contract contains the terms of the agreement between the contractor and the
owner or other interest holder of the real property and is entered into in
advance of any work being undertaken. A proposal prepared by a contractor prior
to entering an agreement is not a contract. Statements, invoices, or other
billings submitted after work has begun are not contracts.
(6)
'Real property improvement' includes the activities of building, erecting,
constructing, altering, improving, repairing, or maintaining real
property.
(7)
'Titled property' means property that must be registered, licensed, titled, or
documented by Georgia or by the United States, such as airplanes, boats, and
motor vehicles. Houseboats and mobile homes, even if permanently located and
used as a primary residence, are titled property and are classified as a
separate and distinct class of tangible property.
(b)
The taxability of purchases and sales by real property contractors is determined
by the pricing arrangement in the contract. Contracts generally fall into one
of the following categories:
(1)
Lump sum contracts are contracts in which a contractor or subcontractor agrees
to furnish materials and supplies and necessary services for a single, stated
lump sum price;
(2)
Cost plus or fixed fee contracts are contracts in which the contractor or
subcontractor agrees to furnish the materials and supplies and necessary
services in exchange for reimbursement of cost plus a fee that is fixed in
advance or calculated as a percentage of the cost;
(3)
Upset or guaranteed price contracts are contracts in which the contractor or
subcontractor agrees to furnish materials and supplies and necessary services
based on cost plus fees but with an upset or guaranteed maximum price which may
not be exceeded;
(4)
Retail sale plus installation contracts are contracts for improvements to real
property in which the contractor or subcontractor agrees to sell specifically
described and itemized materials and supplies at an agreed price or at the
regular retail price and to complete the work either for an additional agreed
price or on the basis of time consumed. In order for a contract to fit in this
category, all the materials that will be incorporated into the work must be
itemized and priced in the contract before work begins. If a contract itemizes
some materials but does not itemize other materials that will be incorporated
into the work, the contract is not included in this category. Because the sale
of the materials is a separable transaction from the installation, the purchaser
must assume title to and risk of loss of the materials and supplies as they are
delivered, rather than accepting title only to the completed work. The
contractor may remain liable for negligence in handling and installing the
items; or
(5)
Time and materials contracts are contracts in which the contractor or
subcontractor agrees to furnish materials and supplies and necessary services
for a price that will be calculated as the sum of the contractor's cost or a
marked up cost for materials to be used plus an amount for services to be based
on the time spent performing the contract. These contracts are similar to cost
plus or fixed fee contracts, because the final price to the property holder will
be determined based on the cost of performance. A time and materials contract
may or may not also have a guaranteed or upset price clause. Time and materials
contracts differ from contracts described in paragraph (4) of this subsection,
because the materials are not completely identified, itemized, and priced in the
contract in advance and because the property owner is contracting for a finished
job rather than the purchase of materials.
(b)(c)
Each person who orally, in writing, or by purchase order contracts to furnish
tangible personal property and to perform services under the contract within
this
state
Georgia
shall be deemed to be the consumer of the tangible personal property and shall
pay the sales tax imposed by this article at the time of the purchase
unless the
contractor has entered into a retail sale plus installation contract as descried
in paragraph (4) of subsection (b) of this Code
section. Any person so contracting who
fails to pay the sales tax at the time of the purchase or at the time the sale
is consummated outside
the limits
of this state
Georgia
shall be liable for the payment of the sales or use tax. This Code section
shall not relieve the dealer who made the sale from such dealer's liability to
collect and pay the tax on purchases by a contractor.
Contractors
performing only contracts described in paragraph (1), (2), (3), or (5) of
subsection (b) of this Code section do not resell the tangible personal property
used but instead use the property themselves to perform services under the
contract. Such contractors should pay sales tax to the selling dealer on all
purchases. They should also pay tax on all materials they manufacture or
fabricate for their own use in performing such contracts, as discussed in
subsection (l) of this Code section. They should collect no sales tax from their
customers, regardless of whether they itemize charges for materials and labor in
their proposals or invoices, because they are not engaged in selling tangible
personal property. Such contractors should not register as dealers unless they
are required to remit tax on the fair market value of items they manufacture or
fabricate to use in performing contracts.
(c)(d)
Each person who contracts to perform services in
this
state
Georgia
and who is furnished tangible personal property for use under the contract by
the person, or such person's agent or representative, for whom the contract is
to be performed, when a sales or use tax has not been paid to
this
state
Georgia
by the person supplying the tangible personal property, shall be deemed to be
the consumer of the tangible personal property so used and shall pay a use tax
based on the fair market value of the tangible personal property so used
irrespective of whether any right, title, or interest in the tangible personal
property becomes vested in the contractors.
(d)(e)
Each person who orally, in writing, or by purchase order contracts to perform
any service the principal part of which is the furnishing of machinery which
will not be under the exclusive control of the contractor shall be liable to
collect a sales tax on the rental value of the machinery so used. If labor and
other charges are not separated from the rental charge, the person so
contracting shall be liable to collect a sales tax on the entire contract
price.
(f)
Contractors who perform retail sale plus installation contracts as described in
paragraph (4) of subsection (b) of this Code section are engaged in selling
tangible personal property. They should register as dealers and provide a
Georgia Dealer or Purchaser Sales and Use Tax Certificate of Exemption (Form
ST-5) to the selling dealer when purchasing materials that will be itemized and
resold under retail sale plus installation contracts. They should not provide
the Georgia Dealer or Purchaser Sales and Use Tax Certificate of Exemption (Form
ST-5) when purchasing items that they use themselves rather than reselling, such
as hand tools, shop equipment, or office supplies. They must collect sales tax
from their customers on the sales price of the itemized tangible personal
property, but not on the separately stated charges for installation
labor.
(g)
Contractors, manufacturers, or dealers who sell and install items of tangible
personal property, including but not limited to those items listed in subsection
(j) of this Code section, must collect tax on the full sales price, excluding
any installation charges, if such charges are separately stated. These items
are tangible personal property even after installation, and their sale with
installation is not classified as a real property contract. Contractors,
manufacturers, or dealers who sell property over the counter without performing
installation services must collect tax on the full sales price of such items,
even though those items will become improvements to real property upon
installation by the purchaser. At the time they are sold in over the counter
transactions, those items are tangible personal property.
(h)(1)
A real property contract may also include materials and labor that are not real
property improvements. A contract that includes both real property work and
tangible personal property is a mixed contract. A mixed contract is not the
same as a retail sale plus installation contract, as described in paragraph (4)
of subsection (b) of this Code section, which deals with a real property
contract in which the contractor separately itemizes and prices all the
materials that will be incorporated as part of the real property. A mixed
contract is one that involves a real property improvement, maintenance, or
repair and also involves providing tangible personal property that remains
tangible personal property and does not become part of the real property. In
the case of a mixed contract, taxability depends upon the predominant nature of
the work performed under the contract and upon the contract terms.
(2)
If the predominant nature of a mixed contract is a contract for a real property
improvement, taxability of the contract will be determined as if the contract
were entirely for real property, and no sales tax shall be collected from the
property owner, even though some tangible personal property is included in the
project.
(3)
If the predominant nature of a mixed contract is a contract for tangible
personal property, taxability of the contract will be determined as if the
contract were entirely for tangible personal property, and the contractor should
purchase any equipment and materials tax exempt by providing a Georgia Dealer or
Purchaser Sales and Use Tax Certificate of Exemption (Form ST-5) to the selling
dealer and charge tax on the full price charged to the customer.
(4)
The determination of the predominant nature of a contract will depend upon the
facts and circumstances of each case. Consideration will be given to the
description of the project and the responsibilities of the contractor as set
forth in the contract. Consideration will also be given to the relative cost of
performance of the real property and tangible personal property components of
the contract.
(5)
If a mixed contract clearly allocates the contract price among the various
elements of the contract, and such allocation is bona fide and reasonable in
terms of the cost of materials and nature of the work to be performed, taxation
will be in accordance with the allocation. The contractor should pay tax on the
materials used for the real property part of the contract and not charge tax to
the customer on the related charge. The customer should pay tax on the rest of
the contract price allocable to the conveyor machinery itself.
(i)
Contractors who are engaged in the following activities are generally considered
to be real property contractors, although any particular job may be determined
not to involve a real property improvement based on the criteria set forth in
paragraphs (1), (2), (4), (5), (6), and (7) of subsection (a) of this Code
section.
(1)
Awning installation;
(2)
Block, brick, and stone masonry;
(3)
Bridge construction;
(4)
Burglar and fire alarm system installation;
(5)
Cabinetry (built-in only);
(6)
Carpentry;
(7)
Carpeting installed with tacks, glue, or other permanent means and serving as
the finished floor;
(8)
Cement and concrete work;
(9)
Closet system installation;
(10)
Dock, pier, seawall, and similar construction, maintenance, or
repair;
(11)
Door and window installation or repair;
(12)
Driveway installation or repair;
(13)
Electrical system installation and repairs, including structural wiring and
cabling, meter boxes, switches, receptacles, wall plates, and similar
items;
(14)
Elevator and escalator installation and maintenance;
(15)
Fencing and gates installation intended for permanent use;
(16)
Flooring;
(17)
Foundations;
(18)
Glass and mirror installation if permanently installed;
(19)
Heating, ventilating, and air-conditioning system work;
(20)
Insulation of structures or structural components;
(21)
Iron work, such as railings, banisters, and stairs, incorporated into
buildings;
(22)
Landscaping work, including walls, walkways, permanent structures such as
greenhouses, arbors, or gazebos, and permanent plantings such as trees,
perennial shrubs, and lawns;
(23)
Lathing;
(24)
Painting of buildings, decks, and other real property structures;
(25)
Paving and surfacing work, including driveways, parking lots, patios, roadwork,
and sidewalks;
(26)
Plastering;
(27)
Plumbing work;
(28)
Radio and telephone transmission towers;
(29)
Roofing work;
(30)
Septic tank installation or maintenance;
(31)
Sheet metal/ductwork;
(32)
Siding installation;
(33)
Site work, including clearing, grading, demolition, and excavation;
(34)
Signs that are permanently attached to real property;
(35)
Solar systems;
(36)
Sprinkler system installation for lawn and garden irrigation or for fire
prevention;
(37)
Stucco work;
(38)
Structural steel and concrete installation;
(39)
Swimming pool installation, including accessories and parts that are permanently
attached or are plumbed or wired into plumbing or electrical
systems;
(40)
Tile work;
(41)
Utility poles and lines installation and maintenance;
(42)
Wallpaper installation;
(43)
Water, sewer, and drainage systems;
(44)
Waterproofing of structures, decks, driveways, and other real property
components; and
(45)
Well drilling and installation.
(j)
The sale, installation, maintenance, or repair of the following items is not
considered to be a real property contract:
(1)
Area rugs and carpets;
(2)
Art work (paintings, statuary);
(3)
Cabinets and shelving (freestanding);
(4)
Computer system components;
(5)
Drapes, curtains, blinds, shades, etc.;
(6)
Entertainment system components (e.g., stereo systems, home theater
systems);
(7)
Furniture;
(8)
Household appliances (unless built in and directly wired);
(9)
Lawn markers;
(10)
Mail boxes;
(11)
Mirrors (freestanding);
(12)
Radio and television antennas;
(13)
Sprinkler systems for lawns or gardens if comprising unburied hoses or tubing
and movable sprinkler heads;
(14)
Stepping stones;
(15)
Equipment used to provide communications services that is installed on a
customer's premises;
(16)
Temporary fencing and gates (e.g., for construction sites); and
(17)
Window air-conditioning units.
(k)
Contractors who perform lump sum, cost plus, guaranteed price, or time and
materials contracts for entities that are exempt from sales taxes, such as
private schools, hospitals, or churches, are taxable on materials the contractor
purchases for use in performing those contracts. Such contractors are not
permitted to use the certificate of exemption issued to the exempt entity in
order to purchase materials for the contract exempt from taxes. The entity's
exempt status is irrelevant, because it applies only to sales of tangible
personal property to the entity, not to the contractor. The contractor, not the
exempt entity, is the taxable consumer of the materials the contractor purchases
to use in performing that contract. The fact that an exempt entity will bear
the economic burden of the taxes paid by the contractor in the form of a higher
contract price does not change the contractor's tax liabilities.
(l)
Contractors may maintain shops, plants, or similar facilities where they
manufacture or fabricate items for their own use in performing contracts.
Contractors are required to pay use tax on the fair market value of the
manufactured or fabricated items. In the case of real property contractors, the
taxable cost of an item manufactured or fabricated for use in performing a
contract does not include labor that occurs at the job site where the item will
be incorporated into a real property improvement or transportation from the
plant where an item was fabricated to the job site. Real property contractors
that are required to remit use tax on manufactured or fabricated items must
register as dealers for purposes of remitting such tax if they are not already
registered as dual operators.
(e)(1)(m)(1)
Any subcontractor who enters into a construction contract with a general or
prime contractor shall be liable under this article as a general or prime
contractor. Any general or prime contractor who enters into any construction
contract or contracts with any nonresident subcontractor, where the total amount
of such contract or contracts between such general or prime contractor and any
nonresident subcontractors on any given project equals or exceeds $250,000.00
shall withhold up to 4 percent of the payments due the nonresident subcontractor
in satisfaction of any sales or use taxes owed
this
state
Georgia.
(2)
The prime or general contractor shall withhold payments on all contracts that
meet the criteria specified in paragraph (1) of this subsection until the
nonresident subcontractor furnishes such prime or general contractor with a
certificate issued by the commissioner showing that all sales taxes accruing by
reason of the contract between the nonresident subcontractor and the general or
prime contractor have been paid and satisfied. If the prime or general
contractor for any reason fails to withhold up to 4 percent of the payments due
the nonresident subcontractor under their contract, such prime or general
contractor shall become liable for any sales or use taxes due or owed
this
state
Georgia
by the nonresident subcontractor.
(f)(n)
Whenever a nonresident subcontractor holding a contract with a general or prime
contractor has posted with the commissioner either a good and valid bond with a
surety company authorized to do business in
this
state
Georgia
or legal securities in an amount of not less than $5,000.00 nor more than
$50,000.00, as determined by the commissioner, conditioned that all sales and
use taxes which may accrue to
this
state
Georgia
on account of the execution of contracts that meet the criteria established in
paragraph (1) of subsection
(e)
(m)
of this Code section by nonresident subcontractors will be paid when due, no
general or prime contractor shall withhold any sums due the nonresident
subcontractor under their contract with respect to sales and use
taxes.
(g)(o)
Nothing contained in this Code section shall be construed to impose any sales or
use tax with respect to the use of tangible personal property owned by the
United States in the performance of contracts with the United States when the
property is not actually used up and consumed in the performance of the
contract. Tangible personal property incorporated into real property
construction which loses its identity as tangible personal property shall be
deemed to be used up and consumed within the meaning of this
subsection.
(h)(1)(p)(1)
Nothing contained in this Code section shall be construed to impose any sales or
use tax with respect to the use of tangible personal property owned by the State
of Georgia, the University System of Georgia, or any county, municipality, local
board of education, or other political subdivision of
this
state
Georgia
in the performance of contracts with such entities when the property is not
actually used up and consumed in the performance of the contract. Tangible
personal property incorporated into real property construction which loses its
identity as tangible personal property shall be deemed to be used up and
consumed within the meaning of this subsection. Any governmental entity which
furnishes tangible personal property to a contractor for incorporation into a
construction, renovation, or repair project conducted pursuant to a contract
with such governmental entity shall issue advance written notice to such
contractor of the amount of tax owed for such tangible personal property. The
failure of the governmental entity to issue such advance written notice to the
contractor of such tax liability shall render such governmental entity liable
for such tax.
(2)
This subsection shall not apply with respect to the use of tangible personal
property owned by the United States.
(i)(q)
The commissioner is authorized to prescribe forms and promulgate rules and
regulations deemed necessary in order to administer and effectuate this Code
section."
SECTION
2.
This
Act shall become effective on July 1, 2009.
SECTION
3.
All
laws and parts of laws in conflict with this Act are repealed.
