Rule 560-12-2-.106 - United States Government Defense Contractors(1) Purpose. The purpose of this Rule is to provide guidance regarding the direct consumable supplies and overhead materials exempt from Georgia sales and use tax in accordance with O.C.G.A. § 48-8-3(58).(2) Definitions. For the purposes of qualifying for the exemption provided for by O.C.G.A. § 48-8-3(58), and as used in this Rule, the following definitions and explanation of terms shall apply:(a) "Appropriate title passing clauses" means those title passing clauses whereby title to overhead materials or direct consumable supplies purchased for use in fulfilling a government contract passes to the United States Department of Defense or the National Aeronautics and Space Administration before the government contractor uses the property.(b) "Direct consumable supplies" means supplies, tools, or equipment used or consumed in the performance of a government contract which are specifically identified to the government contract and the actual cost of which is charged as a direct item of cost to the specific contract. Direct consumable supplies include, but are not limited to, property used to repair items of capital equipment when a portion of the contractor's use is properly allocable to government contracts, notwithstanding the fact that title to the property being repaired remains with the government contractor. The term "direct consumable supplies" does not include tangible personal property that is incorporated into real property.(c) "Government contract" means a contract directly between the United States Department of Defense or the National Aeronautics and Space Administration and a government contractor, for the purpose of national defense, to sell services or tangible personal property which contain the appropriate title passing clauses for overhead materials and direct consumable supplies. The term "government contract" does not include any contract providing for the construction, improvement, maintenance, or repair of or to real property, or to the purchase of tangible personal property for use in fulfilling such contracts.(d) "Government contractor" means any person who enters into a government contract, for the purpose of national defense, directly with the United States Department of Defense or the National Aeronautics and Space Administration to sell services or tangible personal property. This can include a manufacturer, modifier, assembler or repairer of tangible personal property, or seller of services. The term "government contractor" also includes a subcontractor who enters into a contract directly with a government contractor as defined in the first sentence of this paragraph and who incorporates the appropriate title passing clauses. The term "government contractor" does not include any person who enters into a contract to construct, improve, maintain, or make repairs on or to real property, or make purchases of tangible personal property for use in fulfilling such contracts.(e) "Overhead materials" means any tangible personal property used or consumed in the performance of a contract between the United States Department of Defense or the National Aeronautics and Space Administration and a government contractor, the cost of which is charged to an expense account and allocated to various United States government contracts based upon generally accepted accounting principles, and consistent with government contract accounting standards. The term "overhead materials" does not include tangible personal property which is incorporated into real property.(3) Application of Exemption. (a) Direct Consumable Supplies, Tools or Equipment. Sales to a government contractor of direct consumable supplies, tools or equipment, are considered to be sales for resale to the United States Department of Defense or the National Aeronautics and Space Administration if used in a government contract containing the appropriate title passing clauses. The exemption will apply to these sales even though the tangible personal property does not become a component part of the tangible personal property or the services provided by the government contractor. The government contractor may purchase direct consumable supplies, tools or equipment without payment of the tax by issuing a properly executed Certificate of Exemption, Form ST-5, to the appropriate vendor. If the government contractor uses the tangible personal property prior to title passing to the United States Department of Defense or the National Aeronautics and Space Administration, the tax will apply to the sales or use by the government contractor.(b) Overhead Materials. Sales to a government contractor of overhead materials used exclusively in a government contract containing the appropriate title passing clauses for overhead materials shall qualify for exemption by issuing a properly executed Certificate of Exemption, Form ST-5, to the appropriate vendor. The exemption from sales and use tax for overhead materials shall stand repealed for transactions beginning January 1, 2011, and thereafter.(c) Sales to a government contractor of direct consumable supplies, tools, equipment or overhead materials for use in a government contract which do not contain the appropriate title passing clauses, or any other use, shall not qualify for exemption from sales or use tax. The appropriate title passing clauses contained in the government contract will determine if title to the direct consumable supplies and overhead materials passes to the government, and the time at which title does pass. In the absence of the appropriate title passing clauses, the tax will apply to either the sale or use by a government contractor of such direct consumable supplies and overhead materials. In a case where the cost of direct consumable supplies or overhead materials are charged to an expense account which is then allocated to various locations, cost centers or contracts, some of which are engaged in non-government contracts, it will be considered that title did not pass prior to use of the property, and tax will apply with respect to the purchase or use of the property charged to the expense account. If the item is specifically accounted for as being charged to a specific government contract containing the appropriate title passing clauses the tax will not apply. Property will be considered charged to a specific government contract when it is allocated pursuant to the Cost Accounting Standard Disclosure Statement, generally accepted accounting principles, or accounting standards promulgated by the Cost Accounting Standards Board. The government contractor shall be responsible for maintaining adequate records to substantiate the exemption provided for in this Rule. Any government contractor who fails to maintain sufficient documentation shall pay the amount of tax that would have been imposed on the sales or use of such tangible personal property.Ga. Comp. R. & Regs. R. 560-12-2-.106
O.C.G.A. Secs 48-2-12, 48-8-3.
Original Rule entitled "United States Government Defense Contractors" adopted. F. Feb. 10, 1997; eff. Mar. 2, 1997.Amended: F. Aug. 19, 2005; eff. Sept. 8, 2005.Amended: F. July 6, 2006; eff. July 26, 2006.Repealed: New Rule of same title adopted. F. Sept. 16, 2008; eff. Oct. 6, 2008.