Ga. Comp. R. & Regs. r. 560-12-1-.14 — Withdrawals from Inventory

(1) Purpose. This Rule explains the application of sales and use tax to tangible personal property purchased under terms of resale that is subsequently withdrawn from inventory by a retailer, dealer, manufacturer, processor, or converter for any use other than retention, demonstration, or display while holding the property for sale in the regular course of business. (2) Definitions. For purposes of this Rule, the following definitions and explanations of terms shall apply: (a) "Contractor" means any person who orally, in writing, or by purchase order contracts to furnish tangible personal property and to perform services under the contract. (b) "Cost price" means the actual cost of articles of tangible personal property without any deductions for the cost of materials used, labor costs, service costs, transportation charges, or any other expenses of any kind. (c) "Dealer" means any person who is a dealer as defined in O.C.G.A. § 48-8-2(3) , including but not limited to retailers, manufacturers, wholesalers, and distributors. (d) "Fair rental value" means the amount a dealer would have charged for an arm's length, bona fide rental or lease of tangible personal property in the regular course of business at the time such property was withdrawn from inventory. (e) "Fair market value," for purposes of self-produced property withdrawn from inventory by manufacturers, processors, or converters, is the amount a knowledgeable buyer would pay for the property and a willing seller would accept for the property at an arm's length, bona fide sale. In other words,"fair market value" is the sales price at which property would have been offered for sale in the regular course of business at the time it was withdrawn from inventory. Discounts applied in the regular course of business may be deducted when calculating fair market value. When property is offered for sale at varying prices based on volume discounts, close-out pricing, or other factors, fair market value may be calculated using the average sales price at which the property was offered for sale over the 12 month period before the property is withdrawn. With respect to property when no ready market exists for its sale, taxpayers or the Department may provide additional information that is reasonable, relevant and useful to the determination of fair market value. (f) "Industrial materials" means materials that are purchased for future processing, manufacture, or conversion into articles of tangible personal property for resale when the materials become a component part of the finished product. The term also means materials that are coated upon or impregnated into the product at any stage of its processing, manufacture, or conversion, even though such materials do not remain a component part of the finished product for sale. The term "industrial materials" includes "raw materials". (g) "Retailer" means every person making sales at retail or for distribution, use, consumption, or storage for use or consumption in this state. (h) "Retention, demonstration, or display" means holding property in inventory for sale in the regular course of business, and demonstrating or displaying the property's characteristics while holding the property in resale inventory. The term does not include the use of such property in the day-to-day operations of a business; the personal use of such property by employees or others; or the use of such property where the business lists the property as an asset other than inventory on its books and records, whether or not the listed item is expensed or capitalized, even if the capitalization is recaptured if the item is subsequently sold. Any use other than retention, demonstration, or display while holding the property for sale in the regular course of business constitutes a taxable use of the property. (i) "Sales price," for purposes of self-produced property withdrawn from inventory by manufacturers, processors, or converters, means the total amount for which tangible personal property is sold in the regular course of business without any deduction from the total amount for the cost of the property sold, the cost of materials used, labor or service costs, losses, or any other expenses of any kind. The sales price is deemed to be the price at which purchasers and sellers, both having reasonable knowledge of the property and being under no compulsion, are willing to do business (i.e., the amount a knowledgeable purchaser would pay for the property and a willing seller would accept for the property in an arm's length, bona fide sale). (j) "Taxable purpose" means any use other than retention, demonstration, or display while holding property for sale in the regular course of business. The term does not include withdrawals of property from inventory for sale or for further manufacturing or processing. (3) General Rule. (a) A person who purchases tangible personal property under terms of resale without payment of sales and use tax and holds such property for sale at retail in the regular course of business is liable for use tax on the property if such property is subsequently withdrawn from resale inventory and used for a taxable purpose. (b) Use tax must be accrued and remitted for the reporting period in which the property is withdrawn from inventory. Local use tax should be accrued in the jurisdiction in which the property is withdrawn from resale inventory. If such property is subsequently used in another local jurisdiction with a higher rate of local tax, the taxpayer must also accrue and remit an additional amount of local use tax equal to the difference between the higher rate in the jurisdiction where the property is used and the lower rate in the jurisdiction where the property was initially withdrawn from inventory. (4) Withdrawals of Purchased Inventory. (a) A dealer who purchases tangible personal property under terms of resale without payment of sales and use tax is liable for use tax on the cost price of such property if it is withdrawn from inventory and used for a taxable purpose. (b) If the sole use of property purchased under terms of resale, other than retention, demonstration, or display in the regular course of business, is the rental or lease of the property while holding it for sale or the use of the property to transport persons for hire while holding the property for sale, the dealer may elect to collect sales tax on the charges for the rental or transportation rather than accruing and remitting use tax on the cost price of the property. (c) Notwithstanding any other provision in Rule 560-12-2-.09, a dealer who provides property to its sales representatives at no cost is liable for use tax on the cost price of the property. Because the property has been permanently given to the sales representative, the dealer is no longer holding the property in its inventory for sale in the regular course of business. It is immaterial whether the property is used by the sales representative only for demonstration and display purposes or for other purposes in addition to demonstration and display. (d) A dealer who withdraws property from its untaxed resale inventory for a taxable purpose and then subsequently sells that property at retail must first accrue and remit use tax on the withdrawal of the property from inventory, and then collect and remit sales tax on any subsequent taxable sale of the property at retail. The initial withdrawal from inventory and the subsequent taxable sale at retail are two separate taxable events. (e) Purchases of samples by a dealer from a manufacturer are treated as follows: (i) When a dealer purchases samples from a manufacturer or distributor, and the manufacturer or distributor does not collect sales tax on the sales price of the samples, the dealer is liable for use tax on the cost price of the samples (unless they were purchased under terms of resale). (ii) When a dealer purchases samples under terms of resale and subsequently withdraws them from its untaxed resale inventory and provides them to a customer without charge, the dealer is liable for use tax on the cost price of the sample upon its withdrawal from inventory. (iii) A dealer who purchases samples to distribute without charge is not entitled to purchase such samples under terms of resale. The dealer is liable for use tax on the cost price of the samples if the vendor does not collect sales tax on the invoice. If the dealer subsequently sells the samples at retail, the dealer must collect and remit sales tax on the sales price of the samples unless the sale is otherwise exempt. (f) If purchased tangible personal property is withdrawn from inventory outside of Georgia for use or consumption in Georgia and is then used and consumed in Georgia, Georgia use tax is due based on the cost price of the tangible personal property because the withdrawal outside of Georgia constitutes a deemed "retail sale" and the subsequent use or consumption of the tangible personal property occurred within Georgia. However, a credit will be allowed against the Georgia use tax for any tax legally due and paid in the other state on the withdrawal occurring in that state (provided the other state reciprocates the credit). (g) If purchased tangible personal property is transferred from inventory in Georgia to an inventory outside of Georgia where it will continue to be held for sale, then no Georgia use tax is due if any tangible personal property is subsequently withdrawn, used, or consumed outside of Georgia since the property remained in inventory no withdrawal, use or consumption ("retail sale") of the tangible personal property occurred in Georgia. (h) If purchased tangible personal property is transferred from inventory outside of Georgia to an inventory in Georgia where it will continue to be held for sale, then no Georgia sales or use tax is due until the tangible personal property is either sold at retail in Georgia or is withdrawn, used or consumed ("retail sale") in Georgia. (i) Examples. (i) An office supply store purchases 200 rolls of cash register tapes under terms of resale without payment of sales and use tax. Later, an employee removes 5 rolls of cash register tape from inventory to use in the store's registers. The office supply store is liable for use tax on the cost price of the 5 rolls of cash register tape. (ii) A clothing store provides free clothing to its employees, who are required to wear the clothing while at work. The company is liable for use tax on the cost price of the clothing provided to the employees because it is no longer holding the clothing for sale in the regular course of business. It is immaterial whether the clothing is used by the sales representatives for demonstration and display purposes because the employees are free to use the property for other purposes in addition to demonstration and display. (iii) An appliance store removes a microwave from its resale inventory and uses it in its employee lounge. The appliance store purchased the microwave under terms of resale without payment of sales or use tax at a cost price of $50.00. Because the appliance store removed the microwave from its resale inventory and used it for its own purposes, the appliance store is liable for use tax on the $50.00 cost price of the microwave. If the appliance store later sells the microwave as a used appliance, it will be required to collect sales tax from the purchaser on the sales price of the microwave unless the sale is otherwise exempt. The withdrawal from inventory and the subsequent sale at retail are two separate taxable events. (iv) A paint manufacturer purchases paint cards that depict its selection of available paint colors without payment of sales and use tax. The manufacturer provides the paint cards to dealers at no charge. The manufacturer is liable for use tax on the cost price of the paint cards. If the manufacturer had self-produced the paint cards instead of purchasing them, the manufacturer would have been liable for use tax on fair market value of the cards. (v) A paint store removes a color wheel from its resale inventory and provides it to its in-store decorator for use in custom design projects for customers. The paint store purchased the color wheel under terms of resale without payment of sales or use tax at a cost price of $5.00. Because the paint store removed the color wheel from its resale inventory and used it for its own purposes, the paint store is liable for use tax on the $5.00 cost price of the color wheel. If the paint store later sells the color wheel at retail, it will be required to collect sales tax from the purchaser on the sales price of the color wheel unless the sale is otherwise exempt. The withdrawal from inventory and the subsequent sale at retail are two separate taxable events. (5) Withdrawals of Self Produced Inventory. (a) A manufacturer, processor, or converter who purchases industrial materials without payment of sales and use tax is liable for use tax on the fair market value of any property manufactured, processed or converted for sale to third parties if such property is withdrawn from inventory and used for any taxable purpose. (b) A manufacturer, processor, or converter who purchases industrial materials without payment of tax is liable for use tax on the cost price of the industrial materials if the industrial materials are withdrawn from inventory and used for any taxable purpose. (c) Manufacturers, processors, or converters are liable for use tax on the fair market value of samples of tangible personal property distributed without charge. The samples are deemed to be withdrawn from inventory and used as promotional materials. Manufacturers, processors, or converters who make taxable sales of samples to dealers must collect sales tax on the sales price of the samples. (d) A manufacturer, processor, or converter who provides property to its sales representatives at no cost is liable for use tax on the fair market value of the property if the property will not be returned to the dealer's resale inventory. Because the property has been permanently given to the sales representative, the manufacturer, processor, or converter is no longer holding the property in its inventory for sale in the regular course of business. It is immaterial whether the property is used by the sales representatives only for demonstration and display purposes or for other purposes in addition to demonstration and display. (e) Contractors that purchase property for use during the performance of services under a contract without payment of sales tax are liable for use tax on the cost price of such property, even if it is subsequently manufactured, processed or converted before it is used during the performance of services under a contract. Because the property is not manufactured, processed or converted for retail sale to a third party, the appropriate measure of tax is the cost price rather than the fair market value. (f) If self-produced tangible personal property is withdrawn from inventory outside of Georgia for use or consumption in Georgia and is then used and consumed in Georgia, Georgia use tax is due based on the fair market value of the tangible personal property because the withdrawal outside of Georgia constitutes a deemed "retail sale" and the subsequent use or consumption of the tangible personal property occurred within Georgia. However, a credit will be allowed against the Georgia use tax for any tax legally due and paid in the other state on the withdrawal occurring in that state (provided the other state reciprocates the credit). (g) If self-produced tangible personal property is transferred from inventory in Georgia to an inventory outside of Georgia where it will continue to be held for sale, then no Georgia use tax is due if any tangible personal property is subsequently withdrawn, used, or consumed outside of Georgia since the property remained in inventory and no withdrawal, use or consumption ("retail sale") of the tangible personal property occurred in Georgia. (h) If self-produced tangible personal property is transferred from inventory outside of Georgia to an inventory in Georgia where it will continue to be held for sale, then no Georgia sales or use tax is due until the tangible personal property is either sold at retail in Georgia or is withdrawn, used or consumed ("retail sale") in Georgia. (i) Examples. (i) A manufacturer produces and sells vinyl siding products for sale to wholesalers. The manufacturer also produces vinyl siding display pieces (samples) that are provided at no cost to wholesalers for marketing purposes. The display pieces are made from the same industrial materials as the siding products, so the manufacturer purchases all of its industrial materials without payment of sales or use tax. When the manufacturer provides the display pieces to the wholesalers at no cost, the manufacturer is liable for use tax on the fair market value of the display pieces. (ii) A furniture manufacturer purchases lumber without payment of sales and use tax under terms of resale. The lumber is an industrial material that is regularly purchased and incorporated into the manufacturer's inventory of finished tangible personal property for sale. The manufacturer uses some of the lumber to repair a wall in its manufacturing facility. The manufacturer is liable for use tax on the cost price of the lumber withdrawn from inventory because only purchased industrial materials, rather than self-produced finished goods, were withdrawn from inventory. (iii) A company manufactures tools in Georgia. The tools are customarily offered for sale by the manufacturer at $20.00 each. To encourage home improvement stores to carry its tools, the manufacturer withdraws a number of finished tools from its resale inventory and provides them at no charge to the home improvement store's managers. The tools are shipped to store managers in Georgia. The manufacturer is liable for use tax on the fair market value ($20.00) of each tool given away. Further, if the tools are shipped to store managers outside Georgia, the manufacturer is still liable for use tax on the fair market value ($20.00) of each tool given away. When a taxpayer purchases property under terms of resale and then withdraws the property from its resale inventory for any purpose other than retention, demonstration, or display, the taxpayer incurs a use tax liability. Therefore, in this situation, the tool company is liable for Georgia use tax regardless of where the product is shipped because the use occurs in Georgia when the tool is removed from resale inventory in Georgia. Many states will allow a credit against sales and use tax due for any tax legally due and paid in Georgia. (6) Withdrawals of Inventory Held for Rental or Lease. (a) A dealer who purchases property under terms of resale and holds it for rental or lease, and who later withdraws such property from inventory and uses it for any taxable purpose, is liable for use tax on the fair rental value of the property. (b) A dealer who periodically withdraws property from inventory for taxable purposes may elect at any time to pay sales or use tax on the original cost price of property held for rental or lease, and no further sales and use tax liability will be incurred on the dealer's subsequent use of the withdrawn property. In other words, the dealer is liable for use tax based on either (1) the amount that would have been received as a rental fee or (2) the full purchase price of the property originally purchased for rental or leasing. However, a dealer who elects to pay use tax on the original cost price of property, after paying use tax on prior withdrawals, is not entitled to a credit for use tax already paid on the prior withdrawals. (c) A manufacturer, processor, or converter who rents or leases self-produced property while holding it for sale in the regular course of business may elect to treat the fair rental value, rather than the fair market value, as its sale price. The subsequent sale at retail of property held for rental or lease is taxable based upon the sales price of the property. (d) Examples. (i) A dealer purchases a backhoe for purposes of renting or leasing it to customers on a daily basis. The dealer purchases the backhoe without payment of sales or use tax under terms of resale. The dealer occasionally rents the backhoe with an operator (who exclusively controls the backhoe's operation) or uses the backhoe to perform a service. The backhoe is returned to the rental inventory after each "use" by the dealer. The dealer must pay either a use tax on the fair rental value of the periods the dealer used the backhoe or on the cost price of the backhoe held for rental or lease purposes in the regular course of business. If the dealer pays use tax on the cost price of the backhoe, it will not be liable for use tax on subsequent withdrawals from inventory. (ii) A motor vehicle rental company purchases automobiles for the purpose of renting them to customers. The rental company purchases the motor vehicles without the payment of sales and use tax under terms of resale. The rental company withdraws a motor vehicle from its resale inventory to be used exclusively as a company vehicle. The rental company is liable for use tax on the cost price of the vehicle. The company cannot elect to tax the fair rental value of the withdrawal, because the vehicle is not returned to the company's resale inventory after each use. (7) Withdrawals of Inventory by Service Providers. (a) Service providers are dealers who, in addition to providing personal or professional services, may also sell tangible personal property at retail. Special rules apply to service providers because they may sell the same property at retail that they use during the provision of personal or professional services. (b) A service provider who purchases tangible personal property, a part of which may be sold at retail and a part of which may be used in the provision of services, may purchase such property without payment of sales tax under terms of resale. To purchase property without payment of sales tax, a service provider must furnish its vendors with a properly executed Certificate of Exemption (Form ST-5). (c) Replacement parts, materials, and supplies used or consumed by repairmen in repairing tangible personal property belonging to others are taxable either to the service provider or to the owner of the property being repaired, as follows: (i) If a service provider performing repair work does not separately state, itemize or segregate at a fixed or retail price any tangible personal property provided along with the service, the sales tax will apply to the total charge for the tangible personal property and labor. (ii) If a service provider performing repair work does separately state, itemize, or segregate at a fixed or retail price any tangible personal property provided, stating separately the amount for labor, the tax will apply only to the retail sales price of the parts, materials and supplies listed and itemized. The separately stated charge for labor is exempt from sales and use tax. (d) Service providers are deemed to be the consumers of certain tangible personal property used or consumed during the provision of a service if the service provider does not separately charge for such property. This category includes property that loses its identity when used and consumed during the provision of services and property that is deemed to be an inconsequential element of the service transaction. If such property was purchased under terms of resale, the service provider must accrue and remit use tax because the property is deemed to be withdrawn from inventory for the service provider's use. The service provider must accrue and remit use tax on the cost price of any property withdrawn from inventory. (e) The withdrawal from inventory of property used to repair an item under a manufacturer's or retail dealer's warranty that was included in the sales price of the item does not constitute a taxable use by the person performing the repair work. In other words, the manufacturer or dealer is not liable for use tax on the withdrawal of parts or materials used or consumed when making such a repair. The repair parts are deemed to have been part of the original sales price of the warranty accompanying the property. (f) The withdrawal from inventory of property used to repair an item under an optional or extended warranty or maintenance agreement that was not included in the sales price of the item constitutes a taxable use by the person performing the repair work. When a manufacturer or dealer withdraws property from inventory to make repairs under the optional or extended warranty or maintenance agreement, the manufacturer or dealer is liable for use tax on the cost price of the property used or consumed if such property was purchased under terms of resale. If the manufacturer or dealer makes a charge for the property used in the repair, the use of the property is not a withdrawal from inventory for the manufacturer's or dealer's own use. Instead, the sale is the taxable event and the manufacturer or dealer must charge sales tax to the purchaser as with any other retail sale. In this case, the property used in the repair would be taxable and any separately stated labor charges would be exempt. (g) If a service provider regularly purchases taxable tangible personal property from sellers who do not collect Georgia sales tax, the service provider must register as a dealer and report and remit Georgia use tax to the Department. (h) Examples. (i) An automobile dealer sells an automobile to a purchaser for $10,000, which includes as part of the purchase price a manufacturer's warranty. In addition, the dealer sells the purchaser an optional extended warranty for an additional $500. The purchaser owes sales tax on the sales price of the automobile, which includes the cost of the manufacturer's warranty. However, the purchaser is not liable for sales tax on the $500 charge for the optional extended warranty if it is separately stated on the invoice. At a later date, the automobile is repaired under the manufacturer's warranty. Neither the purchaser nor the dealer is liable for tax on the parts used in the repair under the manufacturer's warranty. These parts are deemed to have been included in the sales price of the automobile. However, if the automobile is later repaired under the optional extended warranty, the dealer will be liable for use tax on any parts used in the repair under the optional extended warranty. If a third party is billed for the repairs, then the covered items are subject to sales tax as in any other repair transaction. (ii) An upholsterer agrees to reupholster a customer's sofa. During the provision of the service, the upholsterer uses fabric, padding, and staples. The upholsterer's invoice separately states the charges for the fabric and padding, which were purchased under terms of resale. The upholsterer's invoice does not contain a separate charge for the staples. The upholsterer must collect sales tax from the customer on the sales price of the fabric and padding. If the staples were purchased under terms of resale, the upholsterer is liable for use tax on the cost price of the staples. (iii) A hunting preserve purchases live game birds, ammunition, and skeet under terms of resale by providing a properly executed Certificate of Exemption (Form ST-5) to the dealer. The hunting preserve allows its employees to hunt without charge one day per month. The hunting preserve is liable for use tax on the cost price of the live game birds, ammunition, and skeet used and consumed by the employees. See Ga. Comp. R. & Regs. §560-12-2-.113 regarding the applicability of Georgia sales and use tax to purchases by hunting preserves and clubs. (8) Carpet Samples. (a) Definitions. For the purposes of this paragraph, the following definitions and explanations of terms shall apply: (i) "Carpet sample" means any piece of carpet that is provided at no cost by a carpet manufacturer or distributor to a dealer or any other person for demonstration or display purposes. The term "carpet sample" includes custom samples such as strike-offs and mock-ups. The term "carpet sample" does not include paper carpet samples. (ii) "Manufactured exclusively for commercial use" refers to the manufacture of carpet that is specifically designed for business or industrial use rather than for private or residential use. Commercial uses include uses in office buildings, hotels, restaurants, malls, hospitals, and other business locations. Carpet manufactured for private, residential, or other uses shall not be considered to be manufactured exclusively for commercial use. (iii) "Total raw material cost," as used in connection with carpet samples, means the manufactured cost of carpet samples, including supplies used to manufacture carpet samples such as binding, grommets, and similar items; display devices such as racks and binders; and inbound freight charges. The term "total raw material cost" does not mean or include labor or overhead for assembling or producing samples from finished carpet and does not mean or include outbound freight charges which may be charged to the expense account for carpet samples. (b) General Rule. When a manufacturer or distributor provides carpet samples without charge to a dealer or any other person, the carpet samples are deemed to be withdrawn from the manufacturer's inventory and used for promotional purposes. Therefore, the manufacturer is liable for Georgia use tax. The measure of tax for carpet samples is prescribed by statute and differs from the measure of tax for other types of property withdrawn from inventory. When a manufacturer sells carpet samples, the manufacturer must collect sales tax from the purchaser unless the sale is otherwise exempt. (c) Measure of Tax. For purposes of determining the measure of tax for carpet samples, the fair market value of any carpet sample shall be equal to 21.9 percent of the total raw material cost of the sample, except that the fair market value of a sample of carpet that is manufactured exclusively for commercial use shall be equal to 1 percent of the total raw material cost of the sample. (d) If a manufacturer does not collect sales tax at the time of sale, dealers who purchase carpet samples for use in promoting sales of carpeting must accrue use tax based upon the cost price of the carpet samples. A dealer may not purchase carpet samples under terms of resale unless it actually intends to sell the carpet samples in the regular course of business. A dealer who resells carpet samples is required to collect sales tax from its purchasers. (e) Example. A dealer purchases carpet samples for promotional purchases. When those samples become obsolete, the dealer sells them to customers for use as throw rugs. In this situation, the dealer must pay sales tax when it purchases the samples. Then, when it sells the obsolete samples, it must collect sales tax on the sales price of the carpet samples. The dealer may not issue a resale exemption certificate upon the purchase of the samples. Nor may it claim a credit for any sales or use tax previously paid or accrued. The initial purchase was not a purchase for resale because it was for the dealer's own use, and the subsequent sale at retail was a separate taxable event. (9) Aircraft Dealers. See Ga. Comp. R. & Regs. §560-12-2-.04 regarding the applicability of Georgia sales and use tax to aircraft withdrawn from inventory and used for any taxable purpose (such as for flight instruction and personal and business use). (10) Automotive and Other Motor Vehicle Dealers. See Ga. Comp. R. & Regs. §560-12-2-.09 regarding the applicability of Georgia sales and use tax to items withdrawn from inventory by automotive and other motor vehicle dealers and used for any taxable purpose. To the extent that Rule 560-12-1-.14 is inconsistent with Rule 560-12-2-.09 in any respect, Rule 560-12-2-.09 applies. (11) Donated Goods. (a) Sales and use tax does not apply to the use of prepared food and beverages which are donated to a qualified nonprofit agency and which are used for hunger relief purposes pursuant to O.C.G.A. § 48-8-3 (57.2). Any person making a donation of prepared food and beverages for the purpose specified in this paragraph shall remit the tax imposed thereon unless the person making use of such prepared food and beverages furnishes the person making the donation with an exemption determination letter issued by the commissioner certifying that the person making use of such food and beverages is entitled to use the prepared food and beverages without paying the tax. (b) Sales and use tax does not apply to the use of prepared food and beverages which are donated following a natural disaster and which are used for disaster relief purposes pursuant to O.C.G.A. § 48-8-3 (57.3). (c) Examples. (i) A manufacturer produces and sells bread at wholesale. The manufacturer donates 500 loaves of bread to a nonprofit organization's company picnic. The bread manufacturer purchases the ingredients to make the bread without payment of sales or use tax under terms of resale. The bread is offered for sale by the manufacturer for two dollars per loaf. The manufacturer is liable for use tax on the 500 loaves of bread at fair market value, which is the normal sales price of two dollars per loaf. The bread is used for purposes other than retention, demonstration, or display in the regular course of the manufacturer's business. Furthermore, the exemption for donations for hunger relief purposes is not applicable because the non-profit is using the bread at a company picnic. (ii) A wholesaler donates wine in sealed containers to a qualified 501(c)(3) nonprofit civic organization to be auctioned off for charity. The donation is a withdrawal from inventory and the wholesaler is liable for use tax on the cost price of the wine withdrawn from its untaxed resale inventory. (12) Employee Meals. See Ga. Comp. R. & Regs. §560-12-2-.34 regarding the applicability of Georgia sales and use tax to meals or beverages sold or provided without charge to employees. (13) Industrial Materials . A manufacturer, processor, or converter who purchases industrial materials without payment of sales tax is not liable for use tax when such materials are withdrawn from inventory and used to process, manufacture, or convert articles of tangible personal property for sale. (14) Pharmaceutical, Prescription Drug, and Contact Lens Samples. (a) Except as provided for under subparagraph (14)(b), pharmaceutical and prescription drug samples distributed without charge to physicians, dentists, clinics, hospitals, or any other person or entity located in Georgia, by manufacturers or distributors, whether manufactured inside or outside Georgia, are subject to tax based on the fair market value of the samples or, if purchased, on the cost price of the samples. (b) Prescription contact lenses distributed by the manufacturer to licensed dispensers as free samples, which are not intended for resale and are labeled as such, are not subject to Georgia sales and use tax pursuant to O.C.G.A. § 48-8-3(47) . (15) Research and Development; Quality Control Testing. A manufacturer, processor, or converter who withdraws from inventory self-produced products for use in research and development or quality control testing is liable for use tax on the fair market value of the withdrawn property. (16) Unusable or Unsalable Property . When a taxpayer purchases property tax free under a resale certificate and the property is subsequently deemed to be unsalable or unusable in the regular course of business due to damage or imperfection, the unpaid disposition of such property does not constitute a taxable withdrawal from inventory. However, if a dealer sells property that is unusable or unsalable in the regular course of business, it must collect sales tax from the purchaser on the sales price of the unusable or unsalable property unless the sale is otherwise exempt. For example, a manufacturer or dealer that sells waste or by-products to a recycler must collect sales tax on the sales price of the waste or by-products unless the sale is otherwise exempt. If, however, the manufacturer simply disposes of such property without a sale, there is no taxable event. (17) Stolen Property . When a taxpayer purchases property tax free under a resale certificate and the property is subsequently stolen from the taxpayer, such an involuntary withdrawal of the inventory does not constitute a taxable use. Cite as Ga. Comp. R. & Regs. R. 560-12-1-.14 Authority: O.C.G.A. Secs. 48-2-12 , 48-8-3 , 48-8-39 , 48-8-63 . History. Original Rule entitled "Conversion of Property by Dealer" adopted. F. and eff. June 30, 1965. Repealed: New Rule entitled "Withdrawals from Inventory" adopted. F. Sept. 3, 2008; eff. Sept. 23, 2008. Repealed: New Rule of same title adopted. F. Dec. 1, 2008; eff. Dec. 21, 2008.