Georgia is making big changes to its Direct Pay Permit rules, starting next year. With only a few months left until many permits will expire due to these changes, companies need to understand and prepare for the state's new requirements.
What Is a Direct Pay Permit?
As defined in GA Reg. Sec. 560-12-1-.16, "a direct pay permit means a permit issued by the Department of Revenue that allows the holder of such permit to accrue and pay state and local sales and use taxes directly to the Department". The concept of a direct pay permit was developed to allow manufacturers to determine how a product will be used after it is purchased. Since the use of the item will determine its taxability, this is an important step in the accrual process.
Simply stated, this means that the holder of a direct pay permit DOES NOT PAY state and local tax at the time of purchase. Use tax is accrued by the taxpayer and paid to the appropriate state and local jurisdictions if the tangible personal property purchased under a direct pay permit is used in a taxable manner. Direct pay permits are usually issued to manufacturers, but remember that manufacturers can include more than manufacturing plants. Businesses such as restaurants, grocery deli departments and even software companies can also be considered manufacturers. (BTW - That may be worth exploring in your state...)
What Is Changing?
Effective January 1, 2017, Reg. Sec. 560-12-1-.16 will be amended and cover areas such as the definition of a direct pay permit, expiration date of existing permits and the new application process and criteria a taxpayer must meet in order to apply for a new direct pay permit. One important thing to note that will be added to this regulation is that the taxpayer must agree to waive interest on refunds of sales and use tax remitted for purchases made under a direct pay permit issued on or after January 1, 2017.
All current permits, letters and certificates not issued through the Georgia Tax Center online application process will expire on December 31, 2016 and can no longer be used to make nontaxable purchases after that date. New permits effective January 1, 2017 or later (depending when issued) must be issued through the Georgia Tax Center online application process.
Some of the requirements that a taxpayer must meet in order to secure a direct pay permit in Georgia on or after January 1, 2017 are:
1. The taxpayer must have purchased more than $2 million of tangible personal property in the 12 months prior to the application;
2. The taxpayer must be classified under specific NAICS codes;
3. The taxpayer must agree to waive interest on refunds of sales and use tax remitted for purchases made on or after January 1, 2017 without payment of tax to a vendor. NOTE: This requirement is new and effective January 1, 2017.
The criteria for obtaining a new direct pay permit can be reviewed at the GA DOR site by using the following link to GA Reg 560-12-1-.16 Direct Pay Reporting https://dor.georgia.gov/documents/rule-560-12-1-16-direct-pay-reporting For more information on the Georgia Tax Center use the following link http://dor.georgia.gov/georgia-tax-center-info
Also, effective January 1, 2017, a direct pay permit cannot be used for purchases of fuel subject to prepaid local tax, purchases of meals, beverages or tobacco; purchases of local telephone services or lodging and rental charges for periods of 31 days or less for GA titled motor vehicles. See Paragraph six (6) of this regulation for specifics.
(GA Reg 560-12-1-.16 Direct Pay Reporting, Amended effective January 1, 2017)
What Are Your Thoughts About the Changes Taking Effect in Georgia for Direct Pay Permits?
- If you are currently a permit holder, do you think the transition will be easy?
- If you are contemplating obtaining a permit, how do these changes affect your decision?
Other recent “Georgia (GA)” posts by Lauren Stinson, CMI:
- Georgia's New Sales Tax Law Requires Registration or Reporting
- When Businesses Retain Contractor Services in Georgia: Tax Tips
- Yikes! I Collected Sales Tax But Didn't Remit to the Georgia DOR
- Sales Tax on Labor: In Georgia, Not All is Created Equal
- A Review of Georgia's Sales Tax Exemption Certificates