96-024

Response February 7, 1996

Request

XXXXX,

I HAVE BEEN DIRECTED TO YOU BY THE CONSUMER SERVICE DIVISION STAFF FOR CLARIFICATION OF CERTAIN CHANGES IN THE UTAH STATE SALES TAX LAW.

SPECIFICALLY, I WOULD LIKE AN OFFICIAL UTAH STATE TAX COMMISSION RULING ON THE FOLLOWING ITEMS THAT CONCERN THE “PURCHASE OF CONSTRUCTION MATERIAL FOR SCHOOLS OR RELIGIOUS AND CHARITABLE ORGANIZATIONS”:

1) A) WHERE DO NON-PROFIT, PRIVATE SCHOOLS FALL UNDER THIS LAW ?

B) WHAT ABOUT FOR-PROFIT SCHOOLS?

C) WHAT ABOUT STATE OWNED UNIVERSITIES AND COLLEGES?

D) WHERE DOES XXXXX OF SALT LAKE CITY FALL UNDER THIS LAW ?

2) ARE WE, AS CONTRACTORS, REQUIRED TO USE THE QUALIFIED INSTITUTIONS' SIGNED PURCHASE ORDERS OR MAY WE USE OUR OWN PURCHASE ORDERS THAT SHOW THE NAME OF THE QUALIFIED INSTITUTION AND PROJECT ON THEM?

3) DO WE NEED TO WRITE PURCHASE ORDERS EACH TIME WE PURCHASE ITEMS OR ARE INVOICES WITH THE QUALIFIED INSTITUTION AND PROJECT NAME ON THEM ACCEPTABLE

4) MUST WE GIVE THE VENDOR A COPY OF THE TC-721 WITH EACH INVOICE OR PURCHASE ORDER OR CAN WE JUST KEEP ONE ON FILE WITH THE VENDOR

RESPECTFULLY,

XXXXX

P.S. AS A NUMBER OF SCHOOLS AND OTHER EXEMPT PROJECTS ARE BIDDING

IN THE NEXT MONTH, WE WOULD APPRECIATE AN ANSWER A.S.A.P.

February 7, 1996

XXXXX

RE: Advisory Opinion - sales tax exemption on materials purchased of construction materials on behalf of private or religious schools

Dear XXXXX,

We have received your request for information regarding the sales tax exemption for construction materials purchased in conjunction with school construction projects. We find as follows:

Section 59-12-104 of the Utah Code exempts from sales tax purchases made on behalf of a public (elementary and secondary) schools. The Tax Commission subsequently amended its administrative rule to extend the exemption to purchases made on behalf of religious or charitable institutions. A contractor acting on behalf of a public elementary or secondary school or a school that qualifies as a religious or charitable organization may purchase construction materials tax free. The exemption applies only to purchases made by the contractor on or after January 1, 1996.

To qualify as a religious or charitable organization, a school must be recognized by the Internal Revenue Service as exempt from taxation under Section 501(c)(3) of the Internal Revenue Code. With regard to universities and colleges, institutions like XXXXX and XXXXX that are 501(c)(3) organizations may take advantage of this exemption so long as:

1. the construction materials are clearly segregated and identified to the contract, and

2. the construction materials are actually installed on or converted to real property owned by the qualifying institution.

The exemption does not apply to public institutions of higher education or to private schools that do not qualify as 501(c)(3) organizations.

We do not require you to use the institution's purchase orders, but we do require that the institution provide you with a signed exemption certificate to give the vendor. The exemption certificate need not be on our form TC-721. You may design your own form or you may incorporate the exemption certificate into your purchase order forms. If you design your own exemption certificate, it must contain essentially the same information pertaining to purchases of construction materials as the TC-721, and it must include a signature of an individual who is authorized to sign the exemption certificate on behalf of the institution.

The vendor's records must clearly identify each tax exempt purchase with a qualified tax-exempt institution. Therefore, you must give the vendor some type of exemption certificate form for each purchase. Keeping one form on file with the vendor is not sufficient if you make purchases for other projects from the same vendor. As stated above, you may incorporate the exemption certificate into your purchase order form in order to reduce your paperwork.

Please let us know if we can be of further assistance. We will be happy to work with you if you need assistance designing a form.

For the Commission,

Alice Shearer

Commissioner