Georgia: Tax Tribunal Rules in Favor of Telecommunications Company Seeking High-tech Exemption

The Georgia Tax Tribunal recently ruled in favor of a taxpayer in a suit addressing a refund of sales and use taxes paid on the taxpayer’s purchase of telecommunications equipment. The taxpayer, a telecommunications provider, filed multiple refund claims over a period of years, on the basis that it was entitled to an exemption, known as “the high-tech exemption,” on purchases of telecommunications equipment. Under Georgia law, an exemption from sales and use tax applies to the sale or lease of computer equipment to any high-technology company (based upon the taxpayer’s NAICS code). The equipment must be incorporated into a facility in the state, and the exemption is available only to entities that purchase or lease more than $15 million of computer equipment in a calendar year. Computer equipment means an “individual computer or organized assembly of hardware or software … which performs one of the following functions: storage or management of production data, hosting of production applications, hosting of application systems development activities, or hosting of applications systems testing.” The Department of Revenue denied the refund claims on the basis that the equipment purchased by the taxpayer was “telephone central office equipment or other voice data transport technology” specifically excluded from the scope of the exemption. After the taxpayer’s administrative protests were likewise denied, the matter came before the Tribunal.

Before the Tribunal, the key issues were whether the taxpayer’s purchases met the definition of computer equipment and, if the purchases were computer equipment, whether they were excluded from the scope of the exemption as telephone central office equipment or other voice data transport technology. The Tribunal first determined that the Department’s interpretation of the term “computer equipment” was not entitled to deference as it distorted the definition and rendered amendments to the statute that had been intended to adopt a broad definition of the term meaningless.   The Tribunal held that each asset type for which a refund was sought was an integral part of the taxpayer’s wireless network, which itself is an assembly of hardware and software, and that the majority of the unique assets were themselves computers. With respect to whether the equipment was specifically excluded from the statute, the taxpayer explained that it did not operate a telephone “central office” and that due to technological advances in network technology, almost all traffic across its wireless network was data, not voice signals.  The Tribunal agreed with the taxpayer that it was not operating a telephone central office. Further, with respect to whether the equipment was “other voice data transport technology,” which was not defined, the Tribunal again rejected the Department’s interpretation. All computer equipment has, at a minimum, the capability of transmitting voice, and under the Department’s logic, no computer equipment could ultimately qualify for the exemption. In the Tribunal’s view, the term had to be interpreted as of the time the high tech exemption was enacted (i.e., before the development of a data-centric Internet based network) and therefore it meant technology, other than that housed in a central office, that is utilized to provide wireline service by a local exchange carrier, such as digital switching.  It’s not clear if the litigation is complete; the Department may appeal the decision to a Superior Court or request a redetermination from the Tribunal. Please contact Ben Cella at 404-979-2012 for more information on T-Mobile South, LLC v. David M. Curry.