Georgia Sales & Use Tax Exemptions – Computer Equipment

In Summary

• To qualify for the exemption, a high-tech company’s eligibility is determined by its NAICS code on its annual tax return and it must meet a spending threshold: the total fair market value of leased or purchased computer equipment must exceed $15 million in a single year.
• The Georgia Department of Revenue (DOR) updates exclude several categories of equipment from the exemption, specifically mentioning hardware/software used for training, smartphones, tablets, wearables, and pre-written software.
• Taxpayers claiming the exemption must now pay 10% of all state and local sales and use tax on the first $15 million of eligible equipment. After reporting the exemption on the required return, a 90% refund of the paid taxes will be issued.
• The updated rules refine eligibility by requiring that high-tech companies must use the computer equipment within the state of Georgia for operational purposes.

Earlier this month, the Georgia Department of Revenue (DOR), issued an update to the sales & use tax exemption for computer equipment. Rule § 560-12-2-.107, Computer Equipment, outlines the computer and digital technology equipment exempt from certain state taxes. Originally issued in 2001, the purpose was to attract high tech companies to the state. However, with the growing popularity of data centers, the state created a new targeted exemption specifically for these businesses in 2018. Last year, the state passed a temporary suspension of the exemption which was ultimately vetoed. Acknowledging the concerns of lawmakers, the DOR made several adjustments. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Key Details of the Computer Equipment Exemption

The sales and use tax exemption for high tech companies on the purchase of computer equipment became effective January 1, 2024. Computer equipment includes individual computers, server farms, mainframes, workstations, local area networks (LAN), wide area network (WAN), or any equipment that facilitates data storage, hosting of production applications, application system development activity, or application systems testing. It also includes devices issued to employees such as smartphones, wearables, computers, and pre-written software. Ineligible equipment includes scanners, printers, paper, ink, toner, and maintenance parts to name a few.

Eligibility is determined by the NAICS code submitted on the annual tax return. In addition, the total leased or purchased computer equipment must meet the $15M threshold. This means that the total fair market value of taxable computer equipment, in a single year, must exceed $15M. To claim the exemption a taxpayer must receive an exemption certificate from the DOR. Failing to meet the threshold while claiming the exemption will results in fees, penalties and interest.

Recent Changes

The updates made earlier this month exclude additional computer equipment from exemption eligibility. This includes hardware/software used for training, smartphones, tablets, wearables, and prewritten software. The update also refined eligibility rules to include only high-tech companies using the equipment within the state for operational purposes. The $15M threshold remains in place and was unaffected by recent changes.

The new rules require that any taxpayer claiming the exemption must pay 10% of all state and local sales and use tax on the first $15M of eligible equipment. Those making tax free purchases must report the exemption to the state on the required sales and use tax return. Once received, a 90% refund of taxes will be refunded.

Contact Us

The recently enacted changes will require companies to keep detail records to substantiate claims and ensure proper reporting. Since there are penalties for errors, proper classification is essential. If you have questions about the information outlined above or need assistance with claiming a different type of sales & use tax exemption, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.