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Georgia’s laws provide four circumstances under which computer software can be purchased exempt from sales and use tax.  They are:

1.  Customized computer software – the state of Georgia defines customized software as “computer software which is designed and developed by the author to the specifications of a specific purchaser.”  The way in which the computer software was transferred to the taxpayer does not affect the taxability of the sale of customized computer software.  Sales of multiple copies of the customized software does not influence the taxability of the transaction as long as the other copies of the software are sold to the same taxpayer for whom it was developed.  The combination of two or more prewritten computer software programs does not constitute a sale of customized computer software.  If customized computer software is sold in conjunction with the sale, lease or rental of hardware, machinery or computer equipment and there is not a separate charge for the customized software, the entire transaction is considered to be subject to sales and use tax.

2.  Electronically transmitted computer software - software that is downloaded over the internet, emailed or conveyed to the end user by any “means other than tangible storage media.”  In order to support this claim the taxpayer will need to keep records documenting the software was transmitted electronically.  Ideally, in the “Ship to:” area of the invoice, the seller can put “transmitted electronically” and the email address to which it was sent.  If the file is downloaded via FTP (File Transfer Protocol) or via the internet the taxpayer may have to call and request documentation stating that the transaction was completed electronically. 

3.  Purchases of computer equipment including software that exceed $15 million per calendar year incorporated into a high technology facility classified under the NAICS 51121, 51331, 51333, 51334, 51421, 52232, 54133, 54171, 54172, 334413, 513321, 513322, 514191, 541511, 541512, 541513 or 541519.  For the purposes of this exemption, computer equipment is defined as “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 mailing 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 applications, hosting of application systems development activities, or hosting of applications systems testing.”

4.  Software that is used in one of the specific ways is also considered to be exempt from sales and use tax:

a.  Software that controls production machinery or equipment that is used to manufacture tangible personal property for sale.  The machinery or equipment must be “necessary and integral” to the manufacturing process.

b.  Software that is used to control the primary handling equipment that moves tangible personal property in a warehouse or distribution facility.  Additionally, this equipment must be part of a $5 million or more expansion of an existing warehouse or distribution facility or the construction of a new warehouse or distribution facility where the total value of all real and tangible personal property for use in the construction meets or exceeds the $5 million threshold.

c.  Software that is used in the remanufacture of airplane engine parts or engines.  Remanufacture means the “substantial overhauling or rebuilding of aircraft engines or aircraft engine parts or components.”

d.  Software that is used in equipment or systems whose primary purpose is to reduce or eliminate air or water pollution.

e.  Software that is used in qualified water conservation facilities and is used for water conservation.  A qualified water conservation facility “means any facility, including buildings, and any machinery and equipment used in the water conservation process resulting in a minimum 10% reduction in permit by relinquishment or transfer of annual permitted water usage from existing permitted ground-water sources.”  Additionally, the facility must be governed by the “rules and regulations promulgated by the Department of Natural Resources.”

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability.  If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com. 

Citations:

Georgia Code O.C.G.A. § 48-8-3(34), (34.1), (34.2), (36), (36.1) and (68):

http://www.lexis-nexis.com/hottopics/gacode/default.asp

Substantive Rules and Regulations 560-12-2-.111:

http://rules.sos.state.ga.us/docs/560/12/2/100/11.pdf

www.salesandusetax.com/sales-and-use-tax/state/georgia

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