The Georgia Department of Revenue has amended sales and use tax Reg. Sec. 560-12-1-.16 that governs direct pay permits. Details of the changes are outlined in the Regulation. Here are a few highlights:

• Permits must be applied for through the Georgia Tax Center online application process
• All other direct payment permits will expire on December 31, 2016 and cannot be used to make tax free purchases
• Direct pay permits applied for through the online application process will become effective on or after January 1, 2017 or the date issued whichever comes later

To obtain a Georgia Direct Pay Permit, the taxpayer must have purchased more than $2 million of tangible personal property in the twelve months prior to applying or must have purchased an annual average amount exceeding $2 million of tangible personal property during the thirty-six months prior to applying. The taxpayer must also fall within certain National Industry Codes or Economic Sector Codes. Codes that qualify and usually pertain to our manufacturing clients are Economic Sector Codes 21, 22, 31, 32, and 33. Other codes outlined in the Regulation can also qualify.

Direct pay permits allow taxpayers to accrue and pay sales and use taxes directly to the state instead of directly to suppliers at the time of purchase. For manufacturers, direct pay permits are generally issued because manufacturers often do not know the taxability of items at the time of purchase. Taxability is often better known at the time the item is used at the facility. Basically, direct pay permits ease the compliance burden for the manufacturer and its suppliers. Overall, this lends to more accurate compliance for all – including the State. Essentially, a direct payment permit should be a win-win.

However, with these new changes it can seem to be more of a win-win for the State of Georgia instead of the direct pay taxpayer. Sure the permit still lends towards better compliance which benefits all, but the granting of a permit comes with a condition – the condition that if a direct pay permit is issued, 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. Now the benefits are slanted more towards the State. Funny enough nowhere in the changed regulation does it say the state will waive interest on tax assessments of direct pay permit holders. Is this wanting your cake and eating it too?

Before you rush to reapply for a direct pay permit, step back and study the cost and consequence of no longer being a direct pay permit holder. What processes will need to be changed to operate without the direct pay permit? What vendors will need to be contacted? Can you operate sufficiently with the Manufacturers Exemption Certificate? What procedures in the use tax accrual process will need adjusted with no direct pay permit? Chances are these areas are due for a tune-up anyway. Chances are that many purchases that are currently coded as taxable are in fact really exempt. Chances are that operating without the permit might not be so bad after all, because Georgia manufacturers have a much smaller tax base than a few years back when a direct pay permit was first sought.  Proceed to the Georgia Tax Center for the on-line application process cautiously only after all things have been considered – especially the loss of your right to interest on refunds.