Georgia Sales and Use Tax & Audit Guide
This guide is for businesses that need straightforward answers on the following Georgia Sales and Use Tax subjects:
- Am I required to collect Georgia sales tax?
- Do I have to collect or pay Georgia use tax?
- What if my business should have collected Georgia sales and use tax but have not done so?
- I received an audit notice form the Georgia Department of Revenue, what should I do?
- Guidance on fighting a sales tax assessment in Georgia.
Who Needs to Collect Georgia Sales and Use Tax?
Like most states, to be subject to Georgia sales tax collection and its rules, your business must:
1) Have nexus with Georgia, and
2) Sell or use something that is subject to Georgia sales tax.
How Is Nexus Established in Georgia?
According to the Georgia Department of Revenue, sales tax nexus is created in Georgia if a business has a physical presence in Georgia, such as:
- Occupying and maintaining an office, distribution center, warehouse, sales room or sales office or physical location where business is conducted.
- Soliciting business using an agent, employee, representative (including independent contractor) in Georgia, including selling, delivering, or taking orders for taxable items in Georgia.
- Assembling, installing, servicing, or repairing products in Georgia.
- Owning, renting, or leasing real property or tangible personal property in Georgia, including a computer server or software to solicit orders for taxable items.
- Delivering goods to Georgia customers using your company-owned or leased truck.
- Maintaining inventory in Georgia using a third-party fulfillment service, such as Fulfilled by Amazon (“FBA”).
Additionally, business that do not have a physical presence in Georgia, can establish economic nexus by exceeding a certain annual sales threshold in the state. See the next section for details.
Economic Nexus (Wayfair Law) and Internet Sales in Georgia
Effective January 1, 2020, Georgia policy requires that an out of state business (a.k.a. remote seller) register with the GADOR to collect and remit sales and use tax if the business has made either:
- gross sales of $100,000 into Georgia in the previous or current calendar year, OR
- 200 or more transactions into Georgia in the previous or current calendar year.
Gross sales and transaction count should be calculated using the following:
- Gross revenue from all taxable and nontaxable sales of tangible personal property, digital property, and services in North Carolina.
- Any separately stated handling, transportation, installation, and other similar fees collected by the seller in connection with the sale.
- All sales for resale, exempt sales, nontaxable sales, and marketplace-facilitated sales.
- The number of transactions for all sales channels are combined to determine the number of transactions.
Georgia Sales Made Through Marketplace Providers
If your business sells on Amazon or a similar marketplace facilitator, you may not have to collect sales and use tax on those sales. Specifically, if the marketplace provider certifies they are collecting and reporting sales tax on your behalf, you are off the hook. However, such sales do count towards your total sales threshold, potentially requiring your business to collect tax on sales made directly through your website or other marketplaces.
Which Sales Are Subject to Georgia Sales Tax?
If you have nexus in Georgia, the next step is to determine whether the products or services you sell are subject to Georgia sales and use tax. Like most states, unless an item is specifically exempt, sales and rentals of tangible personal property are subject to Georgia sales tax.
While the general rules seem straightforward, the application of Georgia’s sales tax rules and their nuances, complexities, and application to your business can get complicated. We recommend scheduling a time to review your specific situation with one of our sales tax professionals.
Common exemptions from Georgia sales and use tax:
- Groceries (exempt from state tax)
- Medical equipment and devices
- Pollution control equipment
- Many items used in farming or manufacturing.
Generally, services are not subject to Georgia sales tax. However, the types of services listed here are subject to Georgia sales tax:
- Participation in games and amusement activities
- Transportation of individuals
Georgia has traditional rules regarding the taxability of SaaS, software, and digital products. Generally, SaaS, and other cloud based products are not subject to Georgia sales tax. The sale of prewritten software, however, is taxable when delivered on a tangible medium.
Shipping & Handling
Georgia takes the position that delivery, transportation, freight, or shipping and handling charges are part of the sale, and thus are either subject to sales tax or exempt based on the taxability of the product being sold, regardless of how the shipping is stated on an invoice.
Determining Local Sales and Use Tax Rates in Georgia
Georgia’s base or statewide sales tax rate is 4.00%. However, local taxing jurisdictions (cities, counties, special purpose districts and transit authorities) can charge a local surtax on top of the 4.00%, potentially increasing the total sales tax that must be collected and remitted by the seller. Remote sellers should charge sales tax based on the combined state and local rates applicable at the delivery location for each transaction. The local taxes are remitted to the GADOR as part of the Georgia sales and use tax return.
List of Local Sales and Use Tax Rates in Georgia
The combined Georgia state + local sales and use tax rates for the largest 30 cities are listed below. A comprehensive list can be found here.
I Should Have Collected Georgia Sales Tax, But I Didn’t
Unlike many of our competitors who offer a one size fits all solution and blindly suggest filing a Voluntary Disclosure Agreement (VDA) in each state, our sales tax professionals will work with you to determine the best and most cost-effective solution for your business.
If you determine your business has nexus but you have not collected Georgia sales tax, the primary options are to:
- Register and pay back taxes, penalties, and interest, or
- Complete a VDA to eliminate penalties (and in some cases reduce your tax liability and avoid interest).
Here is what you need to know about each option to make the best decision for your business:
Option 1: Register to Pay Back Taxes, Penalties, and Interest
Sometimes the best solution for a business is simply to register with Georgia and pay back taxes, penalties, and interest. A VDA is not cost-effective if the past liabilities and penalties are minimal. Be wary of the tax professionals that recommend doing a VDA in these cases, they are looking to make a buck rather than looking out for your best interests. If you’re unsure what your past liabilities are, contact us and one of our state tax professionals will work with you to conduct an analysis and help you make the right choice for your business.
When to consider registration and payment:
- If you established nexus less than 3 years ago.
- The sales tax penalty is LESS than the professional fees charged for the VDA.
- Your business does NOT have a sales tax collected issue.
Beware: registering does not generally eliminate past liabilities
Option 2: Voluntary Disclosure Agreement (VDA)
Georgia’s lookback period: 3 years.
In many situations, voluntary disclosures are a useful tool to reduce extended periods of past exposure. For example, if you should have been collecting sales tax for 10 years, the voluntary disclosure limits the lookback period to 3-4 years. As a result, the benefit of doing a VDA often turns on:
- Whether the VDA limits lookback period. i.e. – you established nexus more than 3 or 4 years ago.
- The sales tax penalty savings is MORE than the professional fees charged for the VDA.
- You have a sales tax collected but not remitted issue.
I Received a Georgia Sales and Use Tax Audit Notice, What Should I Do?
Georgia regularly audits businesses that are required to charge, collect, and remit various taxes in the state. Businesses that receive a sales and use tax audit notice should consider the following:
- Unless you have experience handling Georgia sales and use tax audits, how can you trust that the state’s auditor is abiding by the rules and following proper procedure?
- How will you know when to provide documents or when to push back?
- Do you have a thorough understanding of your sales and use tax areas of exposure?
- Controlling the audit is paramount to the limiting exposure and shaping the results. Are you confident in doing that on your own?
If you are unsure of the answer to these questions and you do not have experience handling Georgia sales tax audits, hiring a professional might be right for you. Contact us and learn how our sales tax professionals can give you the peace-of-mind and confidence you need during your audit.
Please visit our resource pages for more detailed information and to help you evaluate critical decisions during your Georgia sales and use tax audit.
- The Audit Overview & Selection Process
- The General Audit Process
- Statute of Limitations Extensions & Issues
- Managing the Sales Tax Auditor
Georgia Sales Tax Audit Process
The audit process usually follows the process laid out in this flowchart. See the detailed guidance for each stage of the process in the sections below.
What to Expect After You Receive a Georgia Sales and Use Tax Audit Notice (Georgia Routine Audit Letter)
Many audits begin with a call out of the blue from a Georgia Department of Revenue’s sales tax auditor. Shortly after the call, your business will receive an audit notice which confirms that you were lucky enough to be chosen for a Georgia sales and use tax audit. To prepare for the audit, it is likely a good idea to start by getting a state and local tax professional involved.
What to Expect From A Georgia Sales Tax Auditor
- Auditor will conduct pre audit research.
- Auditor will often schedule and perform an entrance conference.
- Records will be requested (many of which the auditor is not entitled to and does not need).
What to Expect During The Audit
Once the necessary records are received, the auditor will:
- Conduct the audit by comparing your Georgia sales and use tax returns to your federal income tax returns or bank statements to determine whether all applicable sales, or gross sales, were reported on your Georgia sales tax return(s).
NOTE: A slight error in how tax was charged on even a single type of transaction, when multiplied over three years, can add up to a considerable sales tax liability.
- Once the auditor is confident all sales are accounted for, they will review your exempt and out-of-state sales.
Conduct a use tax audit – the auditor will request a detail of certain
documents / accounts to make sure use tax was properly paid on applicable
purchases. Common areas audited include:
- Advertising Expense
- Auto & Truck Expense
- Repair and Maintenance
- Rent (including related party rent)
- Office Expense
- Miscellaneous Expense
Despite publications to the contrary, if a business buys an item online without paying use tax, the business still has an obligation to remit the tax to Georgia. This often leads to shocking results for the unsuspecting taxpayer during an audit.
After the Audit – Understand and Defend Your Businesses Rights
Upon completion of the audit, there will usually be an exit conference with the auditor. The auditor will produce an audit report with corresponding workpapers to support the Georgia sales and use tax results letter. It is advisable to have a sales tax professional present during this meeting as this is your first opportunity to see the auditor’s findings and push back on areas where they have overstepped their bounds or misapplied Georgia’ sales tax laws. It is equally important that you know your rights throughout this process.
We recommend businesses refrain from agreeing to the sales tax assessment until a sales tax professional has reviewed it for issues that should be challenged. Many businesses wind up drastically overpaying the state because the business owner or in-house accounting personnel were not well versed in the sales tax laws that, if challenged, could have reduced their Georgia sales tax liability.
The process of challenging a Georgia sales tax audit assessment is discussed in detail in the following sections.
Georgia Sales Tax Audit Protest Process Flow Chart
NOTE: If the deadlines are missed, you have a short period of time to pay the tax and seek a refund. If that deadlines is also missed, it can be very difficult to get case reopened.
Contesting Audit Findings with the Auditor
After an audit, the auditor will issue a Georgia Notification of Audit Results (AKA the audit report). This document details the auditor’s findings so it’s important to carefully review and understand its implications. Any issues with the results are handled as follows:
30 days to contest findings with the auditor.
- Documentational issues (exemption certificates, proof tax was paid, etc.) and calculations are worth addressing with the auditor.
- Legal interpretations of sales tax law are often not resolvable at this stage.
- If a resolution cannot be reached with the auditor, the next step is to appeal/protest the issue with the Georgia Department of Revenue.
Appeal / Protest with the Georgia Department of Revenue
Any contested issues that were unresolved prior to the audit report being issued can be protested / appealed by the auditee. This is done after the Georgia Department of Revenue issues the Notice of Proposed Assessment.
- A protest / appeal must be done within 30 days of the Proposed Assessment issuance.
- If you miss the 30 days, in some cases you have may have additional time to pay the tax and file a refund claim.
- If both periods are missed, the assessment becomes final and it is very difficult to reopen the audit.
If you have received a Notice of Proposed Assessment and have not at least talked to someone experienced in Georgia State and Local tax, now is the time before these deadlines are missed.
Notice of Decision
If you cannot resolve the Georgia sales and use tax dispute through the protest / appeal process, the Georgia Department of Revenue will issue a Notice of Decision Letter. The NOPA gives you the opportunity to re-protest the assessment within the agency or file in Georgia’s tax / administrative court, which is called the Georgia Tax Tribunal. There are important deadlines in this phase of the process as well, such as 30 days to file with the Tax Tribunal.
Settling a Georgia Sales Tax Liability
Along the way, or even after one the critical notices are issued, there is the possibility to settle your Georgia sales tax case by negotiating with the Georgia Department of Revenue. Often, you can get better results here than with the auditor. If you or your professional seldom does state and local tax work, it might be difficult to evaluate fair versus unreasonable settlements. DO NOT try to negotiate a settlement without an experienced Georgia state and local tax lawyer or other professional.
Georgia Administrative Court
If you cannot resolve the case within the agency or missed your deadlines, you still have one last shot to fight your Georgia sales tax assessment by going to the Georgia Tax Tribunal. Because neither party wants to spend the time and resources on the uncertainty of administrative court, continuing to challenge the assessment is often an effective way to maximize your settlement potential.
If your case is filed in administrative court, and the case proceeds to hearing, it is heard and decided by a neutral administrative law judge. Our team has handled hundreds of administrative court cases and can help your company receive the resolution it is entitled to. It is very similar to a court hearing and having an experienced representative is imperative.
Other Georgia Sales Tax Resources
Q:What triggers a sales tax audit?
A:You inadvertently waived a red flag or your company landed in the small percentage selected for a random sales tax audit. These red flags include: Cash-based businesses, prior audits that resulted in owed sales tax, your sales reported to the state didn’t match what you reported to the IRS, a high volume of exempt sales, filing a refund claim, or a high number of credits. There’s also a possibility that your business happens to be in an industry that your state suspects rampant under-reporting. Often times, they will target industries effected by complex sales tax laws.
Q:How do I prepare for a sales tax audit?
A:1. RESPOND to the notice; 2. Get organized; 3. Identify/hire your audit manager; 4. Notify your auditor of who they will be corresponding with; 5. Compare your sales tax returns against the federal tax return; 6. Test at least 1 month of exempt sales; 7. Reconcile your sales tax payable account versus your sales tax payments; 8. Review your fixed assets purchased — did you pay sales tax on them?; 9. Review your purchases on your key expense accounts to ensure tax was paid on your purchases.
Q:How long do sales tax audits last?
A:Audit duration can vary dramatically from state to state and from business to business. Waiver issues aside, an audit generally takes 3-7 months to complete. Surprisingly, some audits can drag on for a few years. Time factors usually swing on the size of the company, the ability to produce reliable and organized documentation, and the level of sophistication of the business.
Q:Can I do this myself or should I hire a sales tax lawyer or a sales tax consultant?
A:We all enjoy the occasional DIY project, especially when it saves us money. Before opting to go that route, consider the risk vs. rewards involved. Avalara recently conducted a study and found that the average sales tax audit costs around $115,000. When facing a sales tax audit, it is beneficial to have someone with knowledge of the financial implications on your side. That is where sales tax professionals, such as those at Sales Tax Helper LLC, can save you a lot of heartache and money by avoiding a few missteps.
Q:What accounting software and services do you work with?
A:TaxJar, Vertex O Series, Avalara, Vertex Cloud, Quickbooks, Proconnect Tax Online, Canopy, ONESOURCE, Sovo Intelligent Compliance Cloud, Intuit Lacerte, CCH SureTax, SS&C Advent Axys, Vertex Payroll Tax Q Series, Bloomberg Tax Advantage, VATBox, CSC Corptax Compliant, Oracle Tax Reporting Cloud, TaxCloud, Fast Enterprises, GenTax, Fast Enterprises FastUI, SAP Tax Compliance, Taxify, and ESKORT Compliance Solution.