Georgia: Retailer qualified for Freeport Exemption on component parts

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Detailed Georgia Development

A Georgia appellate court recently affirmed a trial court’s decision granting a taxpayer a property tax exemption on property stored in the state before being shipped to out-of-state locations. The taxpayer, a retailer, purchased parts for its self-checkout machines, which were stored for up to 90 days at the parts manufacturer’s warehouse in Georgia. From that facility, the parts were shipped to the taxpayer’s out-of-state retail locations as needed. Under Georgia law, so-called “freeport” exemptions apply to several types of property, including an “inventory of finished goods which, on January 1, are stored in a warehouse…which are destined for shipment to a final destination outside” Georgia. The taxpayer submitted an application for a freeport exemption for that portion of its parts inventory intended for out-of-state use. The Fayette County Board of Tax Assessors denied the exemption, and the Board of Equalization upheld the denial on appeal. After a trial court ruled in the taxpayer’s favor, the Board appealed.

On appeal, the Board argued that the parts were “stock in the trade of a retailer,” which were excluded from the definition of finished goods eligible for the freeport exemption. “Stock in the trade of a retailer” is defined as “finished goods held by one in the business of making sales of such goods at retail.” The court disagreed with the Board, noting that the taxpayer was not in the business of reselling the self-checkout machine components at retail. As such, they were finished goods as contemplated by the freeport exemption. Next, the Board argued that the items were not inventory, but were in fact equipment, and therefore not eligible for the freeport exemption. The court rejected the Board’s argument, explaining that “equipment” was not specifically mentioned in the exemption statute and that the court had adopted broad definitions of “inventory” in the past.  As such, the court concluded that the freeport exemption applied to the parts held for fewer than 12 months and used by the retailer outside of Georgia.  Please contact Josh Hennessey at 713-319-2881 or Reuben Talaiver at 214-840-2214 with questions on Fayette County Board of Tax Assessors v. Walmart Stores, Inc.


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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US