Understanding Georgia Sales Tax Audits: Fixture Installation and Labor
When it comes to Georgia sales tax audits and construction companies, there are three main questions to consider:
Key Questions in Sales Tax Audits
- Is there sales tax on labor?
- Is there sales tax on installation?
- Is there sales tax on the labor of installing fixtures?
(A fixture is not a tangible item; it is considered real property.)
Sometimes, all three scenarios can be at play in a given transaction.
Practical Example: A Recent Sales Tax Audit
We recently completed a sales tax audit involving a construction company. The auditor was attempting to levy sales tax on the company’s labor. In Georgia, labor is taxable when it contributes to creating a final tangible good for sale. In these cases, the entire cost — both labor and tangible goods — becomes a taxable event or a taxable sale.
Nuance: What Happens With Fixtures?
However, there is a nuance to this law:
What if the labor resulted in the creation of a fixture, not just a tangible item?
Definition of a Fixture (Georgia Law)
Fixture: Tangible personal property that has been installed or attached to land or to any building and is intended to remain permanently attached in its place.
A consideration for determining whether other tangible property is a fixture is whether its removal would cause significant damage to the property itself or the real property to which it is attached.
Because fixtures are considered real property, there is no sales tax on the labor involved in creating or installing a fixture.
Summary: Georgia Sales Tax on Fixture Installation and Labor
- Labor involved in creating tangible goods is generally taxable.
- Labor related to fixtures, considered part of real property, is not taxable in Georgia.
Frequently Asked Questions
Is labor taxable in Georgia for construction projects?
Yes, labor is taxable in Georgia when it directly contributes to the creation of a final tangible good for sale. In these cases, both labor and materials are considered part of a taxable sale.
When is labor not subject to Georgia sales tax?
Labor is not taxable if it is used to create or install a fixture. Fixtures are classified as real property in Georgia, and labor associated with real property improvements is exempt from sales tax.
What qualifies as a fixture under Georgia law?
A fixture is tangible personal property that has been installed or attached to land or a building with the intention of it remaining permanently. If removing the item would cause significant damage, it’s likely considered a fixture and treated as real property.
Does Georgia tax the installation of fixtures?
No, Georgia does not impose sales tax on the installation of fixtures, since they become part of real property. This includes both the labor and materials involved in the installation.
How can businesses determine if a fixture-related labor charge is taxable?
Businesses should assess whether the item being installed qualifies as a fixture and whether the labor is tied to a taxable tangible good or to real property. If it’s the latter, such labor is not subject to Georgia sales tax. Consulting a tax professional during an audit can help clarify gray areas.