Owners with sales-tax-exempt status

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Author Message Susan McClendon Senior Member Username: susan_mcclendon Post Number: 57 Registered: 01-2005 Posted on Monday, March 19, 2007 - 03:36 pm:    Does anyone have any experience with situations where the Owner may pass-thru his tax-exempt status to the Contractor, so the Contractor doesn't have to pay the sales tax on materials? Or, if not that, where the Owner needs purchase documentation in order to file his own tax rebate applications? Or, any other issues that relate to sales tax exempt status of the Owner. Thanks. Bob Woodburn Senior Member Username: bwoodburn Post Number: 166 Registered: 01-2005 Posted on Monday, March 19, 2007 - 04:02 pm:    The way it's handled probably varies somewhat from state to state. As I understand it (and I'm neither a lawyer nor an accountant), in Texas, a tax-exempt entity has to furnish a state sales tax exemption certificate (a standard form, which states the tax-exempt entity's tax exemption number that it obtained from the state) to its vendors for their records, as evidence to accountants and auditors that no tax is due or collectible on such sales; no sales tax is charged, none is collected, none need be refunded. Bidding requirements documents should clearly state that the Owner is exempt from state sales tax, and that the requisite exemption certificate(s) will be furnished to the Contractor for distribution to its subs and suppliers. Ralph Liebing, RA, CSI Senior Member Username: rliebing Post Number: 563 Registered: 02-2003 Posted on Monday, March 19, 2007 - 04:04 pm:    Been a while, but seem to recall a situation where the project was for a non-profit owner, and when so documented allowed contractor to avoid paying the sales tax. Don't recall the documentation, but seems it came as verification of the owner's status. Lynn Javoroski CSI CCS LEED AP SCIP Affiliate Senior Member Username: lynn_javoroski Post Number: 515 Registered: 07-2002 Posted on Monday, March 19, 2007 - 04:20 pm:    In my experience, a list of what/which items the Owner would purchase was provided (usually big ticket items, like a chiller) to the Contractor. And while the Owner made the purchase, the Contractor took possession of the items until such time as they were installed and turned over to the Owner. The Division 1 Section "Owner Purchased Products" was used and the Owner was a municipality, and therefore, tax-exempt. The Section specified the conditions of taking possession and ownership, and there was no trouble. Susan McClendon Senior Member Username: susan_mcclendon Post Number: 58 Registered: 01-2005 Posted on Monday, March 19, 2007 - 04:58 pm:    Google continues to amaze me. I searched for "sales tax exemption" and got more or less what Bob Woodburn said. http://www.window.state.tx.us/taxinfo/taxforms/01-3392.pdf The only difference is that there are not any "exemption numbers" as the footer on the form emphasizes. Bob Woodburn Senior Member Username: bwoodburn Post Number: 169 Registered: 01-2005 Posted on Monday, March 19, 2007 - 05:33 pm:    Susan, I sit corrected - thanks. I got this confused with the resale certificate for buying wholesale, which requires a Texas Sales or Use Tax Permit Number. But those have nothing to do with tax-exempt status. (Evidently others have been similarly confused, hence the note in the footer...) John Bunzick, CCS, CCCA Senior Member Username: bunzick Post Number: 683 Registered: 03-2002 Posted on Monday, March 19, 2007 - 05:36 pm:    It will depend entirely on the state. In Massachusetts, years ago this pass through was limited from what it used to be. (Though I may be out of date since this stuff changes occasionally.) For example, architects with non-taxable clients like municipalities or non-profits could no longer get the printing done without sales tax by having the exemption certificate number. But, construction is still one of those areas where this is still permitted. Interestingly, there is (or at least used to be) a provision whereby you could pay a reduced sales tax based upon the total cost of construction, almost as if the contractor was a "wholesaler". I doubt anyone ever actually did that. Randall L. Cox Senior Member Username: randy_cox Post Number: 34 Registered: 04-2004 Posted on Tuesday, March 20, 2007 - 09:00 am:    I don't recall the details any more, but years ago I worked for a GC building affordable housing for non-profits in Massachusetts. We would get a tax-exempt ID number from the non-profit. I don't remember getting a certificate. We would include the tax-exempt ID in the exhibits we sent with the contract to each sub, and would include it in P.O.s. I recall some discussion about prints, but don't know how it shook out from the contractor side – I think the rule of thumb in MA was that if it was used to make the building, or was expended in constructing the building (like sandpaper is,) then it was deductible. Beyond that you really need to review the tax rules with an attorney or maybe an accountant. Richard Howard, AIA CSI CCS LEED-AP Senior Member Username: rick_howard Post Number: 124 Registered: 07-2003 Posted on Tuesday, March 20, 2007 - 09:14 am:    We are working on a project for a utility company where sales tax exemption applies only to limited portions of the work, depending on operational function. We chose to have those items provided by the owner through separate contracts to avoid splitting hairs on the general construction contract. The accountants and tax attorneys can quibble over the exemptions for those portions of the work without tying up the rest of the pay requests. Ron Beard CCS Senior Member Username: rm_beard_ccs Post Number: 174 Registered: 10-2002 Posted on Tuesday, March 20, 2007 - 12:05 pm:    FWIW, I have used the following text for non-profit Owner projects: “X. Taxes: The Owner is tax exempt from sales tax on products permanently incorporated into the Work. Contractor shall obtain the sales tax exemption certificate number from the Owner and use such exemption number on all invoices for materials in accordance with applicable rules and regulations of local and state authorities having jurisdiction. In the event the Contractor pays taxes on materials and products which the Owner is legally exempt, it shall be at the Contractor’s expense. 1. Upon completion of the Work, file with the Owner a notarized statement that all purchases made under such exemption certificate number were entitled to be exempt. 2. All legally assessed penalties imposed for improper use of the Owner’s exemption certificate number shall be paid by the Contractor. 3. All other taxes, consumer use, or similar fees or taxes not specifically exempt under the Owner’s sales tax exemption number shall be included in the Base Bid and paid by the Contractor.” I’ve used this text, or similar text, for nearly 30 years with no adverse feedback. In the absence of negative or positive feedback, I have just continued to use the text. It obviously could use some refinement, but if it ain’t broke don’t fix it. As previously mentioned above, one must consider the applicable local and state laws and regulations. In Virginia, practically none of the construction materials are exempt but “loose” items such as pews, etc, are exempt if purchased directly by the Owners. In Maryland, practically all of the construction materials are exempt. Virginia contractor’s and owner’s often work out “deals” where the Owner buys the materials and assigns them to the Contractor. This usually means that the both the owner and contractor are more construction savvy. Obviously, how sales taxes are defined, credited, and accounted for should be clearly defined prior to execution of the Contract. I have been recently informed that there is an upcoming seminar dealing with this very topic. I don’t know any of the details. Roy Crawford csi ccs ccca Senior Member Username: roy Post Number: 10 Registered: 03-2005 Posted on Thursday, March 22, 2007 - 08:15 am:    In Ohio, all materials incorporated into a public governmental project is exempt from Ohio Sales and Use Tax. The project owner, if a governmental entity, gives the contractor a Certificate of Tax Exemption, signed by the fisal officer of that entity. The following is my article from the Supplementary Conditions to EJCDC C-700 Standard General Conditions: SC-6.10 TAXES Add a new paragraph immediately after Paragraph 6.10.A: A. OWNER is exempt from payment of sales and compensating use tax of the State of Ohio and of cities and counties thereof on all materials to be incorporated into the work. 1. OWNER will furnish the required Certificate of Tax Exemption to Contractor for use in purchase of supplies and materials to be incorporated into the work. 2. OWNER’s exemption does not apply to construction tools, machinery, equipment, or other property purchased by or leased by Contractor, or to supplies not incorporated into the work.