Georgia Releases Sales Tax Rulings Addressing Taxability of Services and Sourcing Issues
Georgia ruled that custom video services weren’t taxable, even when the video was delivered on a tangible medium, and that the sale of products received in Georgia by a third party on behalf of a customer located outside the state was subject to sales tax.
By Alissa Graffius, SALT senior associate
Recently, Georgia released two letter rulings addressing the sales taxability of video production services that are delivered on both tangible media and via electronic delivery, as well as the sales taxability of products shipped to a third party located in Georgia acting as an agent for an out-of-state customer.
According to the facts of the first letter ruling dated Oct. 20, 2016, the taxpayer is a creative service agency whose main source of revenue is derived from producing corporate videos.  The videos are all custom-made according to specifications given by the customers. Typically, the taxpayer delivers the videos to its customers in electronic form; however, occasionally, the taxpayer will deliver the videos through a tangible medium (e.g., a flash drive). When this occurs, the taxpayer itemizes both the video production charges and the tangible medium separately on the customers’ invoices.
In Georgia, sales tax is applicable to tangible personal property and “certain enumerated services.” Generally, services are not subject to sales tax unless they meet one of the enumerated taxable services. Georgia law does not specifically address the taxability of video production services, so the ruling analogized to the existing Georgia rules regarding software since it is “nontangible property that can be stored on tangible media.”
The ruling notes that the sale of custom software is not taxable regardless of the method of delivery (assuming no separate charge is made for any tangible medium) since the transaction is viewed as a professional service (which is not taxable), and that any tangible medium provided is inconsequential to the overall service transaction. Similarly, the ruling concludes that custom video production services are not taxable regardless of the method of delivery (assuming no separate charge is made for any tangible medium). In cases where the video is delivered on a tangible medium but the customer is not separately charged for it, the taxpayer must pay sales/use tax when it purchases the tangible medium from its vendor.
If the taxpayer separately charges its customer for the tangible medium, then the taxpayer must apply sales/use tax to the amount charged, but any separate charges for the video production services remain non-taxable. In these cases, the taxpayer may purchase the tangible medium with paying sales/use tax as an exempt sale for resale. 
In the second letter ruling dated Nov. 10, 2016, the Georgia Department of Revenue addressed the issue of whether or not the sale of products and related services sold by a Georgia dealer to an out-of-state customer and received by a third party located in Georgia on behalf of the customer are subject to sales tax. 
In this case, a taxpayer who is registered as a Georgia dealer contracted with a customer to provide “a technology solution, comprised of the license of Software, sale of Hardware and performance of Services.” Moreover, the taxpayer contracted with a third party (“assembler”) to assemble the products sold to the customer. The arrangement consisted of the taxpayer shipping the products to the third party assembler, who accepted the products on behalf of the customer and assembled the products on behalf of the taxpayer. The assembler then shipped the equipment to locations inside and outside of Georgia. The taxpayer invoiced the customer, and ownership of the equipment never passed from the customer to the assembler.
The Ruling states that sales are sourced to Georgia when the customer, or its agent who receives the goods on the customer’s behalf, receives the goods in Georgia.  Therefore, the customer is responsible for paying Georgia sales/use tax and must self-remit the tax if the vendor is not obligated to collect it (e.g., the vendor does not have nexus).
With regard to the separately itemized services, Georgia law defines “sales price” to include “charges by the seller for any services necessary to complete the sale.” In determining whether or not services are necessary to complete the sale, the state generally looks to the following: (1) the extent of the relationship between the product and service, (2) whether the products and service may each be purchased separately from one another and (3) any difference in the cost of either the product or service when purchased separately versus together. In this case, while the services and products are related, they may each be purchased separately without the other and the price for each is separately stated. Therefore, the services are not considered necessary to complete the sale, and are therefore nontaxable.
These ruling underscore the significant nuances that exist in state sales tax rules and that minor changes in how one sells or delivers its products and/or services can have implications regarding the proper application of the sales tax rules. Aprio’s SALT team has extensive experience in addressing these sales tax nuances and can assist you in understanding whether or not your products and/or services are taxable depending on your particular facts and circumstances, as well as how slight changes to delivery or invoicing can impact those obligations. Our goal is to ensure that your business is in full compliance with each state’s sales/use tax rules so that no unexpected exposures arise in the future. We constantly monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
This article was featured in the May 2017 SALT Newsletter. You can view the full newsletter here.
 Georgia LR SUT-2016-21, Oct. 20, 2016. Georgia takes about six months from the issuance of a letter ruling to release the ruling to the public.
 It is worth noting that if the taxpayer ever sold any of those videos to another customer, then those videos would no longer be custom, and as such they would be taxable in the same manner as pre-written (i.e., canned) computer software as long as the video was provided on a tangible medium. Canned videos sold electronically would still be exempt.
 Georgia LR SUT-2016-24, Nov. 10, 2016.
 O.C.G.A. §§ 48-8-30(c.1) and 48-8-77(b).
 O.C.G.A. § 48-2-34.
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.