Georgia Court Upholds Walmart’s Freeport Exemption for Self-Checkout Parts

May 5, 2020

Georgia’s personal property tax freeport exemption can provide significant savings to taxpayers, and the exemption can cover more than just items that a taxpayer sells in its business.

By:  Tina M. Chunn, SALT Senior Manager

The treatment of inventory items for ad valorem (business personal property) taxes varies among the states. Some exempt all inventory, some tax all inventory, and some offer exemptions from ad valorem taxes based on specific criteria. Georgia law provides a freeport exemption for certain inventory items but the application of that freeport exemption is not always clear. Recently, the Georgia Court of Appeals issued an opinion upholding Walmart’s freeport exemption application for certain self-checkout parts that were shipped from a Georgia warehouse to WalMart stores outside of Georgia.[1]

In Georgia, all nonexempt personal property located in the state of Georgia on January 1 of each year is subject to ad valorem taxes. However, state law provides counties with the option to exempt the following items under a freeport exemption: 1) inventory of goods in the process of manufacture or production; 2) inventory of finished goods in the hands of the original manufacturer; 3) inventory of finished goods held for shipment outside Georgia; and 4) stock in trade of a fulfillment center.[2]

Walmart submitted a freeport exemption application for certain inventory items that included self-checkout register parts WalMart had agreed to purchase from NCR that were held at NCR’s facility in Fayette County for up to 90 days before being shipped to out-of-state WalMart stores for installation.[3] Walmart identified these items as eligible for a freeport exemption under category 3.

The Board argued first that the self-checkout parts do not qualify as finished goods. Specifically, finished goods are defined to include “goods, wares, and merchandise of every character and kind but shall not include unrecovered, unextracted, or unsevered natural resources or raw materials or goods in the process of manufacture or production or the stock in trade of a retailer.”[4] The Court noted that nothing in the record suggests that the self-checkout parts are natural resources or raw materials, and it concluded that they were not “in the process of manufacture or production” just because they still needed to be installed.  In addition, the self-checkout parts did not qualify as “stock in trade of a retailer” since WalMart does not resell them. Therefore, the Court concluded that the self-checkout parts qualified as finished goods.

The Board next argued the items were equipment and not inventory, making them ineligible for the freeport exemption. The Court noted that the freeport rules do not specifically define inventory or equipment. As such, the Court looked to definitions from the state’s Uniform Commercial Code, it’s model code commentary, and various dictionaries, which generally defined inventory as “goods or materials on hand.” Therefore, the Court concluded that the self-checkout parts were properly classified as inventory.[5]

Accordingly, the Court upheld Walmart’s freeport exemption as applied to the self-checkout parts that were held for less than 12 months and were destined to be shipped to Walmart’s stores outside Georgia.

Freeport exemptions can be misapplied and are often the subject of ad valorem tax inquiries or audits. It is important to be familiar with both the substantive and procedural requirements of the freeport exemption since failure to comply properly can result in significant property tax liability. Aprio’s SALT team is experienced with the freeport exemptions rules and can assist your business to ensure that it is maximizing its exemption. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn, Senior SALT Manager, at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the April 2020 SALT Newsletter.

[1] Fayette County Board of Tax Assessors v. Walmart Stores, Inc., (A19A2238), (March 13, 2020).

[2] OCGA § 48-5-48.2.  Categories 2-4 limit the exemption to a 12-month period.

[3] WalMart returned as taxable those self-checkout parts that were to be shipped to WalMart’s Georgia stores.

[4] OCGA § 48-5-48.2.

[5] It is worth noting that the meaning of inventory for purposes of the freeport exemption is much broader than for purposes of sales tax, where inventory is typically used to describe goods that the taxpayer holds for sale.