Sales Tax Exemption Rules for Construction - U.S.
Disclaimer: Please note this is not a legal or official opinion or statement. You should not rely on the information I have provided, and you will need to investigate the accuracy of my research on your own. This also does not address any sales tax that must be charged by the contractor to the local government.
Alabama - contractors working on city projects must pay sales tax.
Alaska - no statewide sales tax; some cities leverage sales tax, but I could not determine if any individual city allows a contractor an exemption from sales tax if working on a city project.
Arizona - contractors do not pay a sales tax on materials; however they are subject to a “privilege tax” on the receipts of the project which could be viewed as a type of sales tax. Arizona’s method and law seems quite complicated. A general guidance document can be found here: http://www.azdor.gov/portals/0/brochure/603.pdf.
Arkansas - I could not find any language indicating cities are exempt from sales tax in Arkansas.
California - the contractor must pay a sales tax or a use tax even when working for a tax-exempt agency; it did not appear that cities were granted a tax exemption.
Colorado - Colorado provides a form for contractors asking for a project name with a start and end date.
Connecticut - Connecticut provides a form contractors issue to the vendor: http://www.ct.gov/drs/lib/drs/forms/2009forms/salesandusetax/cert/cert-141.pdf.
Delaware - no statewide sales tax
Florida - a contractor cannot use a city’s tax exempt number: http://dor.myflorida.com/dor/forms/2010/gt800067.pdf.
Georgia - provides a form to the contractor to give to a supplier; however, I could not find any specific requirement for proof or certification of approval to use
Hawaii - does not impose a sales tax but does levy a general excise tax. While cities are exempt from this tax, I could not find that contractors were exempt from paying the tax when working on city projects.
Idaho - contractors must pay sales tax even when working on projects for tax exempt entities in the state: http://tax.idaho.gov/learn/EPR00011.pdf.
Illinois - contractors are allowed to use the city’s tax exempt number when purchasing materials for a city project. There is no state-provided form for this purpose.
Indiana - provides a form for contractors to use when working for a tax exempt entity: https://forms.in.gov/Download.aspx?id=2717.
Iowa - provides a service to cities to generate certificates to be used by contractors for specific projects: https://www.idr.iowa.gov/taxexemption/.
Kansas - cities must request a Project Exemption Certificate. http://www.ksrevenue.org/pdf/pub1525.pdf Here is their process:
PROJECT EXEMPTION STEPS
The following chronological steps illustrate how a PEC is requested, issued and used by the project’s owner, contractors and suppliers.
1) A qualifying entity (petitioner) completes a request for project exemption by completing Form PR-76 or on-line at the KDOR web site.
2) KDOR receives and approves or denies the request.
3) If approved, KDOR issues a numbered PEC (Form PR-74) and instructions to the petitioner.
4) The petitioner furnishes copies of the numbered certificate (leaving the seller and purchaser information blank) to the general contractor and/or to each of the contractors and sub-contractors for the job.
5) Contractors and subcontractors make copies of the numbered certificate, and then complete
the purchaser and seller information, sign and furnish the completed numbered certificate to each of their suppliers for the job.
6) Suppliers put the certificate number on all 15 project invoices to verify the sale of materials
and/or labor is exempt.
7) When the project is complete, contractor(s) must furnish the Project Completion Certification (copy herein) to the petitioner with a copy to KDOR.
8) Contractor(s) keep all project invoices for at least five (5) years.
Kentucky - per KENTUCKY SALES TAX FACTS: When a construction firm enters into a construction contract with an exempt entity, that entity’s sales tax exemption status is not extended to purchases made by the contractor.
Louisiana - provides a form for the city to fill out giving the contractor permission to make tax exempt purchases for a specific project; a beginning date and end date for the project is on the form: http://revenue.louisiana.gov/forms/taxforms/1020(4_12)F.pdf.
Maine - provides a form for contractors working on city projects so they can take advantage of the tax exemption: http://www.maine.gov/revenue/forms/sales/STP72.pdf
Maryland - contractor cannot use a government’s tax exempt certificate
http://business.marylandtaxes.com/taxinfo/salesanduse/exemption/contractors.asp.
Massachusetts - form provided to be signed by both contractor and city http://www.mass.gov/dor/docs/dor/forms/wage-rpt/pdfs/st-5c.pdf.
Michigan - does not allow use of tax exempt number by contractors except for a few specific purposes. And in those cases the state provides a form that must be filled out by the contractor.
Mississippi - The contractor does not pay sales tax on materials for a non-residential project with a contract price greater than $10,000. However, the contractor must pay a tax equal to 3 ½% of that contract price. And if the contract has a value greater than $75,000, the tax must be paid prior to beginning work. The contractor must also apply for a Material Purchase Certificate to obtain the sales tax exemption on materials purchased for that contract.
Minnesota - sales tax exemption only extended to the contractor if the tax exempt entity issues form ST3 designating the contractor as their purchasing agent for that project.
Missouri - provides cities with a form they can use; however, it could not be determined if this form is a requirement: http://dor.mo.gov/forms/5060.pdf.
Montana - no statewide sales tax.
Nebraska - allows a sales tax exemption to contractors for the purchase of materials if working for a tax-exempt entity. However, certain forms must be filled out. Here is the state’s matrix for choosing the proper form: http://www.revenue.ne.gov/info/6-496.pdf
Nevada - does not appear that contractors are exempt from paying sales tax when working on local government projects.
New Hampshire - no statewide sales tax.
New Jersey - provides cities with a form they can use to give the contractor. http://www.state.nj.us/treasury/taxation/pdf/other_forms/sales/st13.pdf.
New Mexico - could not find a sales tax exemption allowed for government.
New York - provides Form ST-120.1 that allows contractors to make purchases without paying sales tax on projects completed and delivered to tax exempt organizations
North Carolina - it appears from the North Carolina Department of Revenue website that local governments are not exempt from paying sales taxes.
North Dakota - according to their website, “A contractor performing any contract, including service contracts, for the United States Government, State of North Dakota, Counties, Cities, Villages, School Districts, Park Boards or any other municipal corporations in North Dakota is
not exempt from payment of sales or use tax on material and supplies used or consumed in carrying out such contracts.”
Ohio - allows contractors to use a tax exempt number for government projects, but requires the city to issue a construction contract exemption certificate to the contractor
http://tax.ohio.gov/documents/forms/fill-in/sales_and_use/exemption_certificates/ST_STEC_CC_FI.pdf.
Oklahoma - According to the Oklahoma Tax Commission publication:
A contractor may make purchases based upon the exempt status of another entity subject to the following documentation:
A vendor must obtain:
(1) A copy of the exemption letter or card issued to one of the entities described in (b) of this subsection;
(2) Documentation indicating the contractual relationship between the contractor and the entity; and,
(3) Certification by the purchaser, on the face of each invoice or sales receipt, setting out the name of the exempt entity, that the purchases are being made on behalf of the entity, and that they are necessary for the completion of the contract.
Oregon - no statewide sales tax.
Pennsylvania - only building machinery and equipment is tax exempt. The contractor will issue an exemption certificate to the supplier. I could not find a state-provided form for this purpose.
Rhode Island - provides a form for contractors - the city does not need to sign http://www.tax.ri.gov/forms/2011/Excise/SalesUse/Contractor%20Exempt%20Purchase%20Certificate.pdf.
South Carolina - “According to their publications: Sales to, or purchases by, contractors under contracts with state, county and municipal governments generally are not exempt from the sales and use taxes.”
South Dakota - a tax exempt entity cannot issue a contractor a tax exempt number or certificate: http://www.state.sd.us/drr2/businesstax/publications/taxfacts/exempt.pdf.
Tennessee - Contractors generally owe sales or use tax on material cost even when contracted by agencies or organizations that qualify for sales or use tax exemption.
Texas - I could not find on the State of Texas website any indication that a local government exemption from sales tax would extend to a contractor. However on a Texas law website, I found this language:
“Subsection (g) of Texas Comptroller of Public Accounts’ Sales and Use Tax Rule 3.322 allows a contractor to purchase otherwise taxable construction materials free of sales and use tax if the purchaser is the “authorized agent” of a qualifying tax exempt organization.”
Utah - did not appear that a contractor could take advantage of a local government’s exemption from paying sales tax. A contractor can use this form TC-721 to claim exemption from sales tax only on construction materials used for an airport or for a religious or charitable organization.
Vermont - provides a form for the contractor to use http://www.state.vt.us/tax/pdf.word.excel/forms/business/s-3c.pdf.
Virginia - provides a form the contractor can use http://www.tax.virginia.gov/taxforms/Business/Sales%20and%20Use%20Tax/ST-11A.pdf.
Washington - The Municipal Research and Services Center of Washington has an explanation of sales tax issues in Washington. Based on their explanation, it does not appear that local governments are exempt from paying sales tax on materials for construction.
West Virginia - provides contractor with form: special certificate for utility work: http://www.state.wv.us/taxrev/forms/2011/cst286.pdf
other certificate: http://www.state.wv.us/taxrev/sst/f0003.pdf.
Wisconsin - contractors must pay a sales tax even when working for a tax exempt entity. An exemption does exist for a wastewater plant and in that case the contractor must fill out a state-provided form: http://www.revenue.wi.gov/pubs/pb207.pdf
Wyoming - According to the state’s website, “The exempt entity cannot pass its exemption forward to a contractor performing work for the entity.”