1. Georgia’s new sales and use tax Regulations May 12, 2010

2. WHERE WERE WE? Exemption required that machinery be used for the first time in the state or an upgrade to productive capacity Required machinery to be used directly in the manufacture of TPP for ultimate sale at a fixed location Dual Operator admin/audit procedures Pollution control equipment had to be incorporated into facility and approved by GA regulatory agency

3. WHERE DID WE GET TO? Vast expansion of the manufacturing machinery clarification and overall exemption Removal of restrictive phrases such as “incorporated into a facility,” “used directly,” and “for ultimate sale” New definitions for key terms resulting in exemptions on additional property previously considered taxable Achieved one of the most beneficial exemptions in the country for manufacturing companies Defined who qualifies as a manufacturer with flexible language allowing new technology / processes

4. HOW DID WE GET THERE? Initial legislation introduced to the House Ways and Means Sub- Committee on Sales Tax in 2007 highlighting differences in Economic Development Board’s interpretation on tax exemptions vs. the Ga Dept. of Revenue’s interpretations used to conduct compliance audits Legislation signed into law by Gov. Perdue in May 2008 Four Public Hearing sessions conducted starting in February 2009 drafting Tax Regulation which was ultimately adopted in October 2009 (1 st instance of significant Taxpayer interaction) Significant participation and leadership came from GTMA, GA Paper & Forest Products Assoc., GA Mining Assoc., GA Poultry Assoc., and many industry participating companies

5. § 48-8-3 Exemption Machinery & equipment - necessary & integral Primary material handling equipment Repair & replacement parts – necessary & integral Industrial materials – coated & impregnated Pollution control machinery & equipment

6. Reg. Sec. 560-12-2-.62 Defines manufacturer & manufacturing of TPP Defines consumable supplies – broad Defines industrial materials Defines machinery & equipment broadly Defines packaging operations Defines repair parts

7. MANUFACTURING DEFINITION Manufacture of tangible personal property means a manufacturing operation, series of continuous manufacturing operations, or series of integrated manufacturing operations, engaged in at a manufacturing plant or among manufacturing plants to change, process, transform, or convert industrial materials by physical or chemical means, into articles of tangible personal property for sale or further manufacturing that have a different form, configuration, utility, composition, or character. Removal of phrase “for ultimate sale” Such term includes, but is not limited to, the storage, preparation, or treatment of industrial materials; assembly of finished units of tangible personal property to form a new unit or units of tangible personal property; movement of industrial materials and work in process from one manufacturing operation to another; temporary storage between two points in a continuous manufacturing operation; random and sample testing that occurs at a manufacturing plant; and a packaging operation that occurs at a manufacturing plant.

8. COULD YOU BE A MANUFACTURER? To be considered a manufacturer, the person or business, or the location of a person or business, must be: Classified as a manufacturer under the 2007 North American Industrial Classification System Sectors 21 (Mining, Quarrying and Oil and Gas Exploration), 31, 32, or 33 (Manufacturing); or specific North American Industrial Classification Systems codes 22111 (Electric Power Generation), or 511110 (Newspaper Publishers); or Generally regarded as being a manufacturer. Businesses that are primarily engaged in providing personal or professional services, or in the operation of retail outlets, generally including, but not limited to, grocery stores, pharmacies, bakeries, or restaurants, are not considered manufacturers.

9. WHAT WILL QUALIFY (generally) Machinery & equipment (“M&E) transporting industrial materials, supplies, and packaging materials among different manufacturing plants. M&E to gather, arrange, heat, cool, or treat industrial materials M&E to produce energy for other machinery necessary and integral Testing and QC located at mfg plant Wiring, circuits, piping, conduit and electrical components M&E used to maintain, clean, or repair exempt M&E Safety equipment in the manufacturing plant M&E used to condition air or water to produce conditions necessary to mfg M&E used in quarrying and mining Multi-purpose M&E qualifies if its substantial purpose exceeds 33%

10. WHAT WILL NOT QUALIFY (generally) Motor vehicles Power lines or transformers that bring electricity into mfg plant Real property and fixtures Storage tanks using for finished goods (unless exempted by another code sect) Administrative machinery – Office computers, telephones, fax M&E not operated under the control of the manufacturer’s employees M&E used in quarrying and mining for site preparation – clearing overburden Living organisms of any kind Chep pallets Portable toilets

11. REFUNDS 3 year statute still applies Jan 1, 2009 – Current; you need to quantify and file refund claims under new law Information Bulletin SUT 2009-10-28 A refund of sales and use taxes may be requested by submitting a Claim for Refund (Form ST-12) and a Waiver of Vendor’s Rights (Form ST-12A) as applicable, in the form and within the time limit provided in O.C.G.A. § 48-2-35. Any sales and use tax that is later determine to have been paid in error shall be refunded with interest subject to the provisions in O.C.G.A. § 48-2-35 and §48-2-35.1. Window of opportunity for credits on returns has closed unless credits were taken in 4 th quarter 2009

12. REFUNDS (Cont.) Different methodology for refunds of vendor paid tax vs. use tax self remitted If using percentage based reporting, recalculate percentage to quantify refunds Will not pay interest on refunds if certificate wasn’t administered properly Refunds based on sampling methodology not allowed without prior written agreement from Compliance Division

13. PURCHASING & TDM Changes Work with vendors and send them proper exemption certificates Change your AP processes Change to manual processes Use of bolt-on software TDM updates and mapping Use of outsourced provider

14. AUDIT CONSIDERATIONS Three year statute of limitations will most likely straddle the prior tax law and the new tax law. The following factors should be considered when entering into audits which cover reporting periods impacted by tax law changes: Audit Sampling Techniques Stratified Sampling Procedures Block/Time Frame Samples “True up” audits based on prior audit findings Managed Audits Items Withdrawn from Tax-Paid Inventories Leases executed under prior law which continue into new tax law periods Impact of credits/refunds projected within sample methodologies

15. GENERAL SALES/USE TAX What is a sales tax? What is a use tax? SSTP Nexus Amnesty Voluntary disclosure Software treatment