REQUEST LETTER

01-017

Response May 18, 2001

NAME

ADDRESS

DATE

This letter is to request an advisory opinion on the increased sales and use tax rate effective April 1, 2001. At present, COMPANY has outstanding contracts that were bid and started prior to the April 1 increased rate.

Although we may have had contracts started in Year 2000 or earlier, their completion date is Year 2001 or later. Due to the fact that these contracts were bid based on the old tax rate, it would be a contractual impossibility to tax the additional percentage to our customers; therefore creating a financial hardship upon us.

After calling your tech and sales tax audit departments, their explanation was that no grandfather clause was included in this statue and we would need to request an advisory opinion from your offices.

Please respond to our request as soon as possible. If you need further information, I can be reached at PHONE, extension ###

Sincerely,

NAME

TITLE

RESPONSE LETTER

DATE

NAME

ADDRESS

RE: Advisory Opinion – Sales Tax Rate Increase and Outstanding Contracts

Dear NAME,

We have received your request for an advisory opinion concerning the increase in sales and use tax rates that occurred on DATE. Your company has outstanding contracts that were negotiated and signed prior to the date of the tax rate increase, but were not completed by that date. When completing the contracts in the future, your company will incur greater sales and use tax costs than originally anticipated. You state that this will create a financial hardship on your company, for which you seek relief from the Commission.

The Commission is required to enforce the laws enacted by the Legislature, but may not itself legislate or change the laws that are enacted. At one time, the Legislature provided relief from the tax increase under the circumstances you describe. Until 1987, an exemption from sales and use tax existed in statute that required the Commission to issue a partial tax refund to an entity subjected to an increase in the sales and use tax rate, if the entity had a binding, written contract executed prior to the date of the increase and performance of the contract occurred after the date of the increase. The Commission administered this exemption as required by law by issuing refunds until the Legislature repealed the exemption in its entirety in 1987.

As no exemption from sales and use tax has statutorily existed for such circumstances since that time, the Commission may not itself create one. Accordingly, subsequent to the Legislature repealing the exemption in 1987, an entity must pay any sales and use tax at the rate that exists at the time any sale or purchase related to a contract is transacted, not at the time the contract is executed. The Commission understands that such a legislative position may create a hardship for an entity that has not included an indemnification clause in its contract to account for this situation. However, the Commission does not have the authority to change the law as it currently exists.

Please contact us if you have any other questions.

For the Commission,

Pam Hendrickson

Commission Chair

PH/KC

01-017