Georgia-2009-HB375-Introduced

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:

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:

(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);

(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;

(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;

(24) Painting of buildings, decks, and other real property structures;

(25) Paving and surfacing work, including driveways, parking lots, patios, roadwork, and sidewalks;

(28) Radio and telephone transmission towers;

(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;

(36) Sprinkler system installation for lawn and garden irrigation or for fire prevention;

(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;

(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);

(8) Household appliances (unless built in and directly wired);

(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.