Response Letter
10/11/02
REQUEST LETTER
02-021
NAME
ADDRESS
Attn: TAXPAYER REPRESENTATIVE
Dear NAME,
Per our conversation earlier this week I would like to request a response in writing from the Utah State Tax Commission as to the past and future sales tax status of construction materials purchased by general contractors or subcontractors on behalf of any UNIVERSITY of Utah that is exempt under the religious or charitable sales tax exemption provision. It is my understanding that the following requirements must be met in order to be exempt from sales tax.
1. The organization must be considered to be a religious or charitable institution. In order to qualify for an exemption under this provision the organization must be recognized as exempt from tax under 501(c)(3) of the internal revenue code.
2. The tangible personal property has to be converted to real property and must be owned by the organization.
3. The tangible personal property must become an integral part of the real property.
Your response to this matter is greatly appreciated. Should you need further information you can call me at PHONE or fax me at FAX.
NAME.
RESPONSE LETTER
October 11, 2002
NAME
ADDRESS
RE: Private Letter Ruling – Can UNIVERSITY qualify as religious or charitable institutions for purposes of the sales tax exemption for sales made to or by such institutions?
Dear NAME,
You have requested a private letter ruling from the Tax Commission concerning the past and future taxability of construction materials purchased on behalf of COMPANY that have qualified for recognition under Section 501(c)(3) of the Internal Revenue Code (“Section 501(c)(3)”). Utah Admin. Rule R861-1A-34(A)(2) provides that the Commission will not knowingly issue a private letter ruling addressing a matter pending before the Commission in an audit assessment, refund request, or other agency actions. We are unaware of any pending action concerning transactions such as those you describe. Accordingly, we shall address both the past and future taxability of such transactions.
To determine whether a UNIVERSITY may purchase construction materials tax-free first depends upon whether the UNIVERSITY is a Section 501(c)(3) entity. Utah Admin Rule R865-19S-43. For a non-Section 501(c)(3) private institution, the purchase of construction materials is generally taxable, regardless of who installs or converts the materials to real property. For a non-Section 501(c)(3) “state” university (i.e., a university recognized as a state institution or political subdivision), the purchase of construction materials is exempt from taxation if the materials are installed or converted to real property by employees of the state, its institutions, or its political subdivisions. Utah Code Ann. §59-12-104(2)(a)(ii).
On the other hand, regardless of whether it is a private or state institution, a Section 501(c)(3) university is considered a religious or charitable institution for purposes of the sales tax exemption provided in §59-12-104(8)(a). Under that subsection, “sales made to or by religious or charitable institutions in the conduct of their regular religious or charitable functions and activities” are exempt, subject to meeting the requirements of Section 59-12-104.1.
Utah Admin. Rule R865-19S-58(B)(4) specifically provides that construction materials purchased by a religious or charitable institution are exempt if:
a) the religious or charitable institution makes payment for the materials directly to the vendor; or
b) the materials are purchased on behalf of the religious or charitable institution.
i) Materials are purchased on behalf of the religious or charitable institution if the materials are clearly identified and segregated and installed or converted to real property owned by the religious or charitable institution.
Accordingly, construction materials that are purchased by a contractor or subcontractor on behalf of a Section 501(c)(3) university are exempt from taxation if the materials are clearly identified and segregated, then installed or converted to real property owned by the institution. Of course, to be exempt, the university’s purchase of the construction materials must also be in the “conduct of their regular religious or charitable functions and activities,” as required in Section 59-12-104(8)(a). Otherwise, the purchase is taxable. We also note that the university should submit Tax Commission Form TC-160, Application for Sales Tax Exemption Number for Religious or Charitable Institutions, so that the Tax Commission can determine if the university qualifies for exemption and, if so, issue it a tax exemption (“N”) number. Utah Admin. Rule R865-19S-43(C).
In summary, a contractor or subcontractor may purchase construction materials tax-free on behalf of a Section 501(c)(3) UNIVERSITY if the conditions described above are met. Of course, whether or not those conditions are met involve questions of fact. As such, the specific circumstances of any transaction must be reviewed with these requirements in mind before it can be determined if a specific transaction is exempt.
For exempt sales made to a contractor on behalf of a religious or charitable institution, the contractor may purchase the materials tax-free at the point of sale under the following conditions. First, in accordance with Utah Code Ann. §59-12-104.1(2), the amount of the sale must be at least $1000. Second, the contractor must provide the vendor with an exemption certificate (Tax Commission Form TC-721) completed in the name of the contractor and indicating the name of the COMPANY, its tax exemption (“N”) number, and the project name in the section labeled “CONSTRUCTION MATERIALS PURCHASED FOR SCHOOLS OR RELIGIOUS AND CHARITABLE ORGANIZATIONS.” Utah Admin. Rule R865-19S-23. On exempt sales under $1000, Section 59-12-104.1(2) requires the contractor to pay sales tax on the construction materials at the point of sale, and then apply to the Tax Commission’s Taxpayer Services Division for a refund of the taxes.
Please contact us if you have any other questions.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/KC
02-021