Georgia vacates high-tech sales tax exemption ruling

On June 28, 2022, the Georgia Court of Appeals, First Division, vacated and remanded a trial court’s denial of a wireless company’s high-technology exemption from Georgia sales tax for certain computer equipment purchases.¹ The Georgia Tax Tribunal previously determined that the wireless company was entitled to receive the exemption, but according to the Court of Appeals, the trial court did not employ the proper standard of judicial review when reversing the Tribunal.

Background

T-Mobile South, a wireless company, originally filed over $11 million in refund claims for the Georgia sales tax paid upon its purchases of certain equipment during 2012 through 2016 under the high-technology (high-tech) exemption. The Georgia Department of Revenue denied the refund claim after determining that the equipment did not qualify as “computer equipment” entitled to receive the exemption. T-Mobile protested the denial of the refund, but the Department again denied the refund after a review conference. Upon this denial, T-Mobile petitioned the Georgia Tax Tribunal for review. The Tribunal ruled that T-Mobile was entitled to the exemption as the equipment purchased to build its high-speed broadband internet network (LTE network) was intended to establish a data network and not a voice network that was expressly excluded from the exemption. In response to the Department’s appeal, the Fulton County Superior Court (trial court) reversed the Tribunal’s ruling by finding the equipment did not qualify for the exemption. The Georgia Court of Appeals subsequently granted T-Mobile’s application for discretionary review of the trial court’s judgment.

High-tech exemption

Georgia provides a high-tech exemption from sales tax for computer equipment that is incorporated into a facility in the state to any high-technology company classified under the North American Industrial Classification System (NAICS) code if the sale of the computer equipment exceeds $15 million for the calendar year.² The exemption statute provides a detailed definition of “computer equipment,”³ but the term does not include “[t]elephone central office equipment or other voice data transport technology.”⁴

There was no dispute that T-Mobile qualified as a high-technology company under the NAICS code and that its annual purchases of equipment were more than $15 million. The dispute concerned whether the equipment qualified for the high-tech exemption as “computer equipment.” The Department determined that the equipment purchased by T-Mobile did not constitute computer equipment because it was excluded as “telephone central office equipment or other voice data transport technology.” The Tax Tribunal disagreed with the Department and held that the equipment qualified for the high-tech exemption as computer equipment and was not subject to the telephone equipment and voice data exclusion.⁵ To support its decision, the Tribunal issued a 54-page opinion that included over 100 specific and detailed findings of fact. The Tribunal found that the LTE network was designed from the beginning as a data network and was not intended for voice. Also, the Tribunal expressly found that the LTE network was not capable of transmitting voice calls throughout much of the relevant tax periods. The trial court reversed the Tribunal after concluding that the equipment was excluded as “other voice data transport technology” because the LTE network is capable of and intended to permit voice calls.

Trial court failed to apply proper standard of review

In vacating and remanding the trial court’s decision, the Georgia Court of Appeals held that the trial court did not use the correct standard of review. On appeal, T-Mobile argued that the trial court improperly substituted its judgment for the Tax Tribunal’s judgment on certain questions of fact. Specifically, T-Mobile argued that the trial court disregarded and contradicted the Tribunal’s finding of fact that the LTE network equipment was data transport technology rather than voice data transport technology. According to T-Mobile, the trial court’s holding contravened the Tribunal’s finding that the LTE network was designed specifically for data rather than voice transmission.

In reaching its decision, the Court of Appeals considered the standard of review that trial courts must use when reviewing the Tribunal’s findings of fact. Any party may appeal a final decision of the Tribunal to the Fulton County Superior Court. Acting as a trial court, the superior court defers to the Tribunal’s factual findings but may reverse or modify the judgment if substantial rights of the petitioner have been prejudiced because the Tribunal judge’s findings, inferences, conclusions, or judgments violate the constitution or a statute; exceed the Tribunal’s authority; use unlawful procedure; are affected by other error of law; are clearly erroneous; or arbitrary, capricious, or characterized by abuse of discretion or unwarranted exercise of discretion.⁶

The Court of Appeals explained that when reviewing tax statutes, “taxation is the rule, and exemption from taxation is the exception.”⁷ Also, the court noted that “the interpretation of a statute by an administrative agency which has the duty of enforcing or administering it is given great weight and deference.”⁸ However, such “[d]eference is not due unless a court, employing traditional tools of statutory construction, is left with an unresolved ambiguity.”⁹ The Court of Appeals also noted that the “trial court is prohibited from undertaking a de novo determination of evidentiary questions, and should instead determine whether the facts found by the Tribunal are supported by any evidence.”¹⁰

Having established the trial court’s proper standard of review, the Court of Appeals determined that there was no evidence supporting the trial court’s finding that the LTE network was expressly intended for voice calls. In fact, the Court of Appeals opined that the trial court’s “finding directly contravenes the Tribunal’s express and opposite finding that the LTE network was not intended for voice and had been designed from the beginning as a data network.” The trial court improperly substituted its factual finding rather than considering whether there was any evidence supporting the Tribunal’s finding that the LTE network was not intended for voice calls or concluding that the Tribunal’s findings were “clearly erroneous.” The Court of Appeals concluded that while the trial court expressed the correct standard of review, the court disregarded some of the Tribunal’s factual findings. As a result, the Court of Appeals vacated the trial court’s ruling and remanded the case so that the trial court could apply the proper standard of review.

Commentary

This decision is at least a temporary victory for both T-Mobile and the independent judgment of the Tribunal because the trial court has been directed to reconsider the case by properly reviewing the Tribunal’s decision that allowed the high-tech exemption. The Court of Appeals noted that its opinion is not intended to indicate how the trial court should rule after the application of the proper standard of review. However, the Tribunal’s detailed and thorough opinion holding that T-Mobile was entitled to receive the high-tech exemption for its substantial equipment purchases will need to be given further consideration if the trial court ultimately rehears the case.¹¹ This decision may provide taxpayers more comfort in pursuing Tribunal hearings as it supports the notion that a trial court cannot simply skip over the Tribunal’s specialized thought process and instead substitute its own judgment on tax issues.

On remand, the trial court will need to decide whether there is evidence to support the Tribunal’s finding that the LTE network was not intended for voice calls, or to determine whether the Tribunal’s finding was clearly erroneous. As this potentially large sales tax exemption may be available to other similarly situated high-tech companies based on the Tribunal’s analysis, other wireless companies will be closely monitoring the trial court for a second decision that ultimately could support possible sales tax refund claims under the high-tech exemption.

1 T-Mobile South, LLC v. Crittenden, Georgia Court of Appeals, First Division, No. A22A0095, June 28, 2022.
2 GA. CODE ANN. § 48-8-3(68)(A).
3 “Computer equipment” is defined as “any individual computer or organized assembly of hardware or software, such as a server farm, mainframe or midrange computer, mainframe driven high-speed print and mailing devices, and workstations connected to those devices via high bandwidth connectivity such as a local area network, wide area network, or any other data transport technology which performs one of the following functions: storage or management of production data, hosting of production applications, hosting of application systems development activities, or hosting of applications systems testing.” GA. CODE ANN. § 48-8-3(68)(C)(i).
4 GA. CODE ANN. § 48-8-3(68)(C)(ii).
5 T-Mobile South, LLC v. Curry, Georgia Tax Tribunal, Docket Nos. 1732418, 1800700 (consolidated), Aug. 6, 2020.
6 Inglett & Stubbs International v. Riley, 791 S.E.2d 642 (Ga. App. 2016); see GA. CODE ANN. § 50-13A-17(b), (g).
7 Georgia Department of Revenue v. Owens Corning, 660 S.E.2d 719 (Ga. 2008).
8 Id.
9 City of Guyton v. Barrow, 828 S.E.2d 366, (Ga. 2019).
10 See Commissioner of Insurance v. Stryker, 463 S.E.2d 163 (Ga. App. 1995).
11 Note that this statutory exclusion from the exemption was amended effective July 1, 2021 to include “any wireline or wireless telecommunication system.” GA. CODE ANN. § 48-8-3(68)(C)(ii), as amended by Act 166 (S.B. 6), Laws 2021. Therefore, the availability of the high-tech exemption to wireless companies may differ for tax periods beginning on or after July 1, 2021.

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