96-035
Responses February 23, 1996 and February 29,
1996 and April 5, 1996
Request
Effective
Date: January 1, 1996
Regarding:
XXXXX School and XXXXX School Material Purchase, Breakdown and Sales Tax
Credit.
Dear
Subcontractor/Supplier:
It
has been brought to our attention that there must be a specific procedure
followed to ensure that the sales tax exemption for school's construction
material is eligible for exemption.
This procedure will be described in this letter.
Enclosed
are forms:
TC-721G-
Filled out by the School District
TC-721
Filled out to your company by XXXXX for a specific school.
TC-721-
(Blank) for your use
The
Government Exemption Certificate (TC-721G) is issued from the school district
to XXXXX. The Exemption Certificate (TC-721) is issued from XXXXX to its
subcontractor/supplier. In turn, for
each subcontractor/supplier that you have contract with, for materials that
will be converted to school property, will need an Exemption Certificate
(TC-721 ) issued and signed from you.
In addition your subcontractor/supplier will also need a copy of the
TC-721G and TC- 721 filled out by XXXXX along with a blank TC-721 and same
instructions for their subcontractors/suppliers that apply. All forms will need to be kept on your file
for audit review purposes.
For
Example:
XXXXX sends this (1) letter and (3) enclosed forms to
subcontractor "X". X makes a
copy of the blank form (TC-721) and sends to their supplier "Y,"
including a letter describing this procedure, a TC-721 filled out from X to Y,
and copies of the three forms that X received.
Making a total of (1) letter and (4) enclosed forms sent to Y. Y in turn does likewise for its
subcontractors/suppliers sending out (1) letter and (5) forms. This process grows in the number of forms
sent with each subcontractor/supplier involved.
This
process will be used for all sales tax credits for construction materials that
will be converted to public school property.
Please note that the tax commission does not issue a sales tax number
but requires that these forms be filled out completely.
According
to tax bulletin 16-95, public schools are no longer required to pay sales tax
for construction materials. Purchases
of construction materials that are to be incorporated in the public school
projects will now require a separate billing breakdown from labor and materials
now incorporated in the work and rom materials previously purchased. Materials will need to be clearly identified
and segregated specifically on the billing breakdown in order to be exempt from
sales tax. Billings from your subcontractors
and suppliers must also be prepared in the same fashion and included in your
billing to us. Provide copies of
delivery tickets and the material invoices with your billings and those of your
subcontractors and suppliers to XXXXX at the time your submit your monthly pay
estimate.
Forming
materials, temporary heating materials, scaffolding, safety equipment, etc.,
are not incorporated in the work and will not be exempt from Utah Sales
Tax.
Be
advised that sales tax must not be included for materials in progress
billings from this point on. With each billing
the amount of sales tax which would have been charged must be clearly indicated
so that your contract can be adjusted.
This will be effective for pay estimates submitted beginning with the
month of December 1995.
Respectfully,
XXXXX
XXXXX
RE:
Advisory Opinion Sales tax exemption on construction materials purchased on
behalf of public schools.
Dear
XXXXX,
We
have received your request for an opinion regarding the sales tax exemption on
purchases of construction materials for school projects. We offer the following guidance to assist
you with the record keeping requirements.
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.
The construction materials must be clearly segregated and identified to
the contract, and they must actually installed on or converted to real property
owned by the qualifying institution.
At
the time of purchase, you or your subcontractor must present the vendor with an
exemption certificate which identifies the purchase with a qualifying school
project. However, it appears that you
are requiring more of your subcontractors that we would require of them. It is sufficient that the subcontractor
furnish to the vendor an exemption certificate which identifies the purchase
with a particular school or school construction project.
The
exemption certificate need not be on our form TC-721. To reduce your paperwork, you may incorporate the exemption
certificate into your purchase order forms.
In that case, the exemption statement on the purchase order form must
contain essentially the same information pertaining to purchases of
construction materials that appears on page 2 of form TC-721 and a signature of
an individual who is authorized to make purchases on behalf of the
institution. Presumably, a contractor
or subcontractor who has entered a contract to participate in the construction
project is authorized to sign the exemption certificate.
Let
us know if you would like assistance in designing an exemption certificate form
that meets your particular needs. Feel
free to contact us with any additional questions.
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
Dear
XXXXX,
This
letter is to clarify the information contained in our letter of February
23. When XXXXX or any other contractor or
subcontractor makes a purchase of construction materials on behalf of XXXXX
High School or XXXXX High School, the contractor making the purchase must
present an exemption certificate to the vendor (supplier). If you or your subcontractors use our exemption
certificate form (TC-721), the following information must be supplied in the
spaces indicated: On the top of the first page of the form, fill in the
vendor's name and, in the boxes provided, supply information about the
contractor who is making the purchase and claiming the exemption on behalf of
the school. On the back side of the
form, fill in the name of the school and identify the particular construction
project for which the construction materials are purchased. Remember the construction materials
purchased on behalf of a school must be segregated from other purchases and
clearly identified to the contract.
The
exemption certificate is delivered to the vendor. The vendor is required to retain the exemption certificate with
his or her sales tax records. XXXXX and
its subcontractors are not required to keep a copy of the exemption
certificate. However, each contractor
and subcontractor must maintain sufficient sales tax records to document
qualifying purchases made on behalf of public schools in the event of an
audit. That information may be
documented on the contractor's invoices.
XXXXX is not required to keep sales tax records for its subcontractors.
I
hope this information is helpful. Let
us know if you have further questions.
For
the Commission,
Alice
Shearer
Commissioner
XXXXX
Re:
Construction Materials
Dear
XXXXX,
Enclosed
are copies of the administrative rules governing items of tangible personal
property that are attached to real property.
One set of copies are the rules as they stand right now. The other set shows the Commission's
proposed amendments. The amendments are
still in the public comment period, so they are subject to change until they
are finalized. However, I think they
will still provide you with useful information.
You
also asked a question about a supplier who has indicated that it sells only
personal property, not construction materials.
This raises two issues. The
first issue is whether the contractor or the supplier is in the best position
to make a determination about construction materials. We feel the contractor is in the best position to make that
call. However, we understand that the
vendor takes seriously his job of collecting sales tax on taxable sales. To avoid placing the vendor in a difficult
position, it is our policy to hold harmless the vendor who accepts an exemption
certificate in good faith.
The
second issue is whether chalkboards, blackboards and like items are considered
construction materials or personal property.
Under both the current and amended rules, the real property contractor
is responsible for the sales tax on items used as construction materials and
converted to real property. The types of items at issue here present an
especially difficult question because they could be considered either personal
or real property, depending upon how they are installed. We generally look at
the method of installation for clues as to whether the item is intended to be a
permanent part of the real property.
Therefore, if the building is especially constructed to accommodate
trophy cases and lockers in recesses in the wall, the items are generally
considered to be converted to real property upon installation. On the other hand, if set of lockers or a
case or cabinet is free standing or readily moveable without much damage to the
building, it remains personal property even while attached.
With
regard to blackboards and bulletin boards, if the building was especially
designed to accommodate the boards with the intent that they remain in position
permanently, they are converted to real property upon installation. You indicated that classroom walls are
sometimes designed with special structural support because the wall will be
used for blackboards and bulletin boards.
In such a case, the boards qualify as construction materials. On the other hand, the school may at some
point find that it has a need to install a bulletin board in the hallway. It
may purchase a bulletin board and have it installed on the wall in much the
same way that heavy artwork might be installed. In that case, the installation does not amount to a construction
project, and the bulletin board remains personal property, even when attached
to real property.
It
is worth noting that a public school or religious school may still purchase the
bulletin board or other items of personal property tax free, but it cannot do
so through a real property contractor. To take advantage of the exemption, the
school must purchase the item directly from the supplier. It may then hire a contractor to install the
item under a separate nontaxable transaction.
I
hope this information is helpful. Don't
hesitate to contact us whenever you have a question.
For
the Commission,
Alice
Shearer,
Commissioner