January 02, 2014
OVERVIEW: Exemption certificates created by the Department. The State has declared that in order to prevent tax evasion, it is presumed that all sales of tangible personal property and enumerated services are taxable “until the contrary is established” Used to prove an exemption applies to a particular transaction.
GOOD FAITH: Contractors are under no duty to police their customers or debate a customer’s determination to use an exemption certificate.
- Caveat: certificate must be accepted in “good faith”
- Case law does not describe what good faith is. Rather, the law describes what constitutes a lack of good faith. That being, “actual knowledge that an exemption certificate is false or fraudulent
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Example:
- security services on construction projects
- flooring: guidelines are set forth on back of ST-124
ST-124 CERTIFICATE OF CAPITAL IMPROVEMENT
Purpose: Declares to contractors that work to be performed on behalf of taxable customer will constitute a capital improvement to real property and that the contractor is relieved of the responsibility of charging and collecting sales tax on the contract price.
- Exempts what would otherwise constitute a taxable sale.
- Receiving an ST-124 relieves contractors of obligation to collect sales tax and places burden of proving that a project is exempt solely on the shoulders of the customer.
- Required to be obtained from customer within 90 days of performing the capital improvement.
General contractors should provide copies of the ST-124 to their subcontractors so that subcontractors are also relieved of responsibility of charging and collecting sales tax on their subcontract prices.
An ST-124 accepted in good faith shields contractors from liability for sales tax if the Department of Taxation and Finance subsequently determines that the project did not constitute a capital improvement.
ST-124 may not be used to purchase materials. Evidence of a lack of good faith.
A properly executed ST-124 should include:
1. name of “customer”/project owner
2. name of prime contractor
3. brief description of project to be performed
4. signature of customer’s authorized representative
5. signature of contractor’s representative
No ST-124, no exemption: contractor must charge and collect sales tax from its customer. Customer may apply for a refund of tax paid if it can prove job constituted a capital improvement.
ST-119.1 EXEMPT ORGANIZATION EXEMPT PURCHASE CERTIFICATE
All governmental entities are tax exempt. No exemption certificates.
Other organizations must apply for tax exempt status. If tax exempt status is obtained, the organization is authorized to issue the ST-119.1 Exempt Organization Exempt Purchase Certificate.
Purpose: Declares to the contractor that the customer with whom it is contracting is a tax exempt organization and that, as a result, no sales tax should be charged on the contract price.
Issued on projects where the customer is a non-governmental tax exempt organization such as a religious or educational institution.
General contractors should provide copies to their subcontractors so that subcontractors will be aware that the project qualifies as tax exempt.
A properly executed ST-119.1 should include:
1. name of the “seller”
2. name of the exempt organization
3. signature of representative of exempt organization
As mentioned, governmental organizations do not issue ST-119.1 Certifications since they do not have to prove their tax exempt status.
- The contract document with the governmental entity is sufficient proof of the project’s tax exempt status
- Subcontract agreements should identify the project, the project location and the tax exempt owner.
- Attach face page of GC’s contract or letter from tax exempt organization
ST-120.1 CONTRACTOR EXEMPT PURCHASE CERTIFICATE
Purpose: Issued by contractors to vendors in order to purchase qualifying materials and services exempt from sales tax.
The qualifying tax exempt purchases are identified on the front of the ST-120.1. The purchase must satisfy one of the identified categories.
Common construction industry uses:
1. Purchasing materials for use in performing projects for tax exempt organizations so long as the materials are incorporated into the real property or are transferred to the tax exempt organization as part of the project. Box A
2. Purchasing subcontractor services on taxable projects when the service is to be resold to the customer. Box J
Example: contractor hired for repair services hires two subcontractors. Since the project is taxable, the subcontractors services can be purchased exempt from sales tax if they are to be resold to the customer and taxed at that time.
3. Purchasing TPP for installation that will remain TPP after installation.
Box D
Example: 541.5(b)(4)(iii) regulations cites an example of a free standing water fountain.
Example: taxable projects where TPP purchased and “actually transferred” to customer can be readily removed without material damage to property or realty
- cameras installed with an alarm system
- amusement rides bolted to real property
NOTE: “CAUTION” set forth on bottom of form directed to contractors.
Cannot purchase services unless those being resold
Cannot purchase tools, equipment, supplies for use in completing project
A properly executed ST-120.1 should include:
1. name of “vendor”/supplier
2. name of purchasing contractor
3. purchasing contractor’s sales tax vendor ID number
4. description of project upon which materials will be used or services performed
5. identification of qualifying category for exempt purchase
6. signature of purchasing contractor’s representative
ST-120 RESALE CERTIFICATE:
Don’t use it
See specific language on form: Contractors may not use this certificate to purchase materials or supplies