Ga. Comp. R. & Regs. R. 560-12-2-.107 - Computer Equipment

(1) In accordance with O.C.G.A. § 48-8-3(68)(A) and this Regulation, transactions occurring on or after January 1, 2001, which involve the purchase or lease of computer equipment not otherwise exempt under Chapter 8 of Title 48 of the Official Code of Georgia Annotated will be exempt from sales and use tax. To qualify for the exemption, the following conditions must be met:

(a) The computer equipment must be purchased or leased exclusively for operational use in this state at a high-technology company as defined in this Regulation; and

(b) The value of computer equipment purchased during any calendar year must exceed $15 million, or the fair market value of leased computer equipment, as defined in paragraph (2)(b) of this Regulation, must exceed $15 million during any calendar year.

(c) Any combination of purchases and leases exceeding $15 million during any calendar year shall also qualify for exemption.

(2) Definitions. For purposes of qualifying for the exemption provided for by O.C.G.A. § 48-8-3(68), and as used in this Regulation, the following definitions and explanations of terms shall apply.

(a) Classification Codes. The term "classification codes" means the designated codes associated with the North American Industrial Classification System, as specified in O.C.G.A. § 48-8-3(68)(A).

(b) Computer Equipment. The term "computer equipment" means any individual computer or organized assembly of hardware or software, such as a server farm, mainframe or midrange computer, mainframe-driven high speed print and mail devices and workstations connected to those devices via high bandwidth connectivity such as a local area network, wide area network, or any other data transport technology which performs one of the following functions: storage or management of production data, hosting of production application system development activities, or hosting of applications systems testing which are not otherwise exempt under Chapter 8 of Title 48 of the Official Code of Georgia Annotated.

(c) Company Facility. The term "company facility" means a single physical establishment, as defined in the North American Industrial Classification System United States Manual 1997, where the primary business activity is designated within the classification codes as specified in O.C.G.A. § 48-8-3(68)(A) and approved by the commissioner.

(d) Fair Market Value. The term "fair market value," for the purpose of qualifying a lease for this exemption, means the book value of the computer equipment being purchased by the leasing company at the time of the lease's inception. The fair market value of the computer equipment for leases entered into prior to January 1, 2001, will be determined by the book value of the computer equipment as of January 1, 2001.

(e) High-technology Company. The term "high-technology company" means a company or specific company facility that has been assigned a classification code as specified in O.C.G.A. § 48-8-3(68)(A). This includes, but is not limited to, a company that is engaged in providing computer programming and design services, providing data processing services, manufacturing semi-conductors and related devices, and providing telephone and telegraph communications.

(f) Majority of Business. The term "majority of business" means greater than fifty (50) percent of the gross revenues derived from the services designated in the classification code.

(3) General Requirements for the Computer Equipment Exemption.

(a) In order to qualify for the computer equipment exemption provided for in O.C.G.A. § 48-8-3(68) and this Regulation the following conditions must be met:

1. The qualified purchasers or lessees of such computer equipment must obtain a Certificate of Exemption from the commissioner as provided in paragraph (3)(b) of this Regulation. The application for such Certificate must contain a specific schedule of planned purchases or leases, or both, of qualified computer equipment for the calendar year for which the application is filed.

2. The computer equipment must be purchased or leased exclusively for operational use in this state by a high-technology company which is classified under specific classification codes as designated in O.C.G.A. § 48-8-3(68).

3. The exemption is applicable only for qualified computer equipment which is purchased or leased exclusively for operational use in this state by a high-technology company on or after January 1, 2001.

4. Effective October 1, 2002, to qualify for the exemption, any corporation, partnership, limited liability company, or any similar entity which qualifies for the exemption and is affiliated in any manner with a nonqualified corporation, partnership, limited liability company, or other similar entity, must conduct at least a majority of its business, as measured by gross revenues received in arms length transactions, with entities with which it has no affiliation.

(b) Any purchaser or lessee desiring to secure the benefits of the exemption provided by O.C.G.A. § 48-8-3(68) must file an Application for Certificate of Exemption (Form ST-CE1). The application shall include disclosure of business name, address, specific company facility location (if applicable), North American Industry Classification Code as indicated on the Federal Income Tax return for the high-technology company, North American Industry Classification Code for a specific company facility (if applicable), whether equipment is purchased, leased or both, anticipated dates of purchase or lease, and a schedule of the computer equipment to be purchased or leased for the entire calendar year including purchase price, or in the case of a lease, the book value. In addition thereto, the commissioner may require such other information as deemed necessary for the determination of the claim for exemption. These requirements are applicable to all purchasers and lessees, including holders of a direct pay permit.

(c) Upon approval of an application, the commissioner will issue a Certificate of Exemption (Form ST-CE2) to the company that relieves the computer equipment supplier from the collection of the sales and use tax on computer equipment solely used by a qualifying company in this state or solely used at a designated and approved company facility in this state (if applicable).

(d) Where the Certificate of Exemption (Form ST-CE2) has not previously been obtained and tax is collected on the purchase or lease of computer equipment which may be qualified for exemption, the purchaser or lessee may apply for a refund of such tax. The Claim for Refund (Form ST-12) shall be accompanied by an Application for Exemption (Form ST-CE1).

(4) Specific Applications; Exemptions and Exceptions Relating Thereto.

(a) For purposes of determining the appropriate classification code for a high-technology company, the classification code of the high-technology company as indicated on its Federal Income Tax Return shall be used unless that classification code is determined by the commissioner to be inappropriate for purposes of the exemption; or in the case of a specific company facility the classification code designated and approved by the commissioner on the Application for Certificate of Exemption (Form ST-CE1) shall be used.

(b) In determining the $15 million requirement for a specific company facility meeting the designated North American Industry Classification Code, only computer equipment purchases or leases solely designated for that specific company facility in this state are eligible for the exemption.

(c) The purchase price of all computer equipment or the fair market value of all leased computer equipment, or any combination thereof, used by a high-technology company in this state, regardless of the number of purchases or leases entered into during a calendar year, shall be used when determining the $15 million requirement.

(d) In determining the $15 million requirement for a qualifying lease, the fair market value of the computer equipment under the qualifying lease shall only be used in the initial year's determination and shall not be used in subsequent years. In addition, the exercise of any option to purchase such computer equipment under a qualifying lease shall not be used in subsequent years to meet the $15 million requirement.

(e) If, after obtaining the Certificate of Exemption required under paragraph (3)(c) of this Regulation, the actual purchase(s) or lease(s) fails to meet the requirements for this exemption, the high-technology company will be liable for tax, penalty and interest on the purchase(s) or lease(s).

(f) Any Certificate of Exemption issued prior to the effective date of this Regulation for calendar year 2002 to a high-technology company that fails to conduct at least a majority of its business with nonaffiliated entities shall not be valid for purchases made on or after October 1, 2002. This paragraph shall not apply to any Certificate of Exemption extended on a company facility basis.

(g) Examples of items that do not qualify for the exemption include, but are not limited to: cable; telephone central office equipment; voice data transmission equipment; equipment with imbedded hardware or software used primarily for training, product testing or in manufacturing; scanners; printers and paper; ink and toner; wrist and mouse pads; tools; all removable storage media such as, diskettes, compact disks or tapes; and parts for maintenance or repair of computer system hardware.

Notes

Ga. Comp. R. & Regs. R. 560-12-2-.107

O.C.G.A. Secs. 48-2-12, 48-8-3.

Original Rule entitled "Computer Equipment" adopted. F. Dec. 21, 2000; eff. Jan. 10, 2001. Repealed: New Rule of same title adopted. F. Sept. 23, 2002; eff. Oct. 13, 2002.