Ala. Admin. Code r. 810-6-3-.77 - Exemption For Certain Purchases By Contractors And Subcontractors In Conjunction With Construction Contracts With Certain Governmental Entities And Statutorily Exempt Entities
(1)
On and after January 1, 2014, the sale to, or the storage, use, or consumption
by, any contractor or subcontractor of any tangible personal property to be
incorporated into realty pursuant to a contract entered into on or after
January 1, 2014, with a governmental entity is exempt from all state, county,
and municipal sales and use taxes.
For this rule, a governmental entity is defined as:
(a) The State of Alabama.
(b) A county or incorporated municipality of
the State of Alabama.
(c) An
educational institution of the State of Alabama, or a county or incorporated
municipality of the State of Alabama.
(d) An industrial or economic development
board or authority that is exempt from the payment of Alabama sales and use
taxes.
(e) Other governmental
entities that are exempt from the payment of Alabama sales and use
taxes.
(f) On or after January 1,
2019, the term governmental entity includes any public water or sewer
authority, district, system, or board that otherwise is exempt from sales and
use tax. The sale to, or the storage, use, or consumption by, any contractor or
subcontractor of any tangible personal property to be incorporated into realty
pursuant to a contract entered into on or after January 1, 2019, with any
public water or sewer authority, district, system, or board that otherwise is
exempt from sales and use tax is exempt from all state, county, and municipal
sales and use taxes.
(g) On or
after January 1, 2020, the term governmental entity includes any airport
authority established pursuant to Chapter 3 of Title 4 of the Code
of Ala. 1975, that otherwise is exempt from sales and use tax. The
sale to, or the storage, use or consumption by, any contractor or subcontractor
of any tangible personal property to be incorporated into realty pursuant to a
contract entered into on or after January 1, 2022, with an airport authority
that otherwise is exempt from sales and use tax is exempt from all state,
county, and municipal sales and use taxes.
(h) On or after January 1, 2022, the purchase
of construction materials for use on construction projects for governmental
entities; to include any contract for the construction of highways, roads, or
bridge projects is exempt from all state, county, and municipal sales and use
taxes.
(i) On or after April 14,
2022, the term governmental entity includes an agricultural authority,
established pursuant to Chapter 20 of Title 11 of the Code of Ala.
1975, that otherwise is exempt from sales and use tax. The sale
to, or the storage, use, or consumption by, any contractor or subcontractor of
any tangible personal property to be incorporated into realty pursuant to a
contract entered into on or after April 14, 2022, with an agricultural
authority that otherwise is exempt from sales and use tax is exempt from all
state, county, and municipal sales and use taxes.
(2)
Governmental
Entity-Purchases Not Exempt. The exemptions outlined in
section (1) do not apply to any of the following:
(a) Purchases of tangible personal property
by a contractor or subcontractor for storage, use, or consumption in
conjunction with performing a contract with a governmental entity that is not
itself exempt from Alabama sales and use taxes.
(b) Purchases of tangible personal property
by a contractor or subcontractor that are not incorporated into realty pursuant
to the contract.
(c) Purchases of
tangible personal property for contracts with the federal government.
(d) Purchases of tangible personal property
made pursuant to any contract entered into prior to applicable dates in section
(1).
(3)
Exclusion from Governmental Entity
Exemption. The exemption outlined in section (1) does not
apply to the sale to, or the storage, use, or consumption by, any contractor or
subcontractor of any tangible personal property purchased pursuant to a
contract with a state other than the State of Alabama, a county or incorporated
municipality of a state other than the State of Alabama, an industrial
development board created pursuant to the Constitution or general or local laws
of a state other than the State of Alabama, an educational institution of a
state other than the State of Alabama, or an educational institution of a
county or incorporated municipality of a state other than the State of
Alabama.
(4) On or after January 1,
2024, the sale to, or the storage, use, or consumption by, any contractor or
subcontractor of any tangible personal property to be incorporated into realty
pursuant to a contract entered into on or after January 1, 2024, with a
Statutorily Exempt Entity is exempt from all state, county, and municipal sales
and use taxes.
For this rule, a statutorily exempt entity is defined as:
(a) Any person or company, as
those terms are defined under §
40-23-1, Code of Ala.
1975, that has been granted a statutory exemption from the payment
of Alabama sales and use taxes.
(b)
Any person or company listed in Article 1, Chapter 9 of Title 40,
Code of Ala. 1975.
(c) Any person or company which the state is
prohibited from taxing under the Constitution or laws of the United States or
under the Alabama Constitution.
(5) Statutorily Exempt Entity - Purchases Not
Exempt. The exemptions outlined in section (4) do not apply to any of the
following:
(a) Purchases of tangible personal
property by a contractor or subcontractor that are not incorporated into realty
pursuant to the contract.
(b)
Purchases of tangible personal property made pursuant to any contract entered
into prior to January 1, 2024.
(6)
Application
Requirements.
(a)
Contractors and subcontractors licensed by the State Licensing Board for
General Contractors, must apply per project to the department for a sales and
use tax certificate of exemption. Upon application, the contractor and
subcontractor must provide the department with an estimated amount of tax
exempt purchases to be made for the project. Upon review and approval of the
application, the department shall issue the applicant a certificate of
exemption, which shall be used by the certificate holder to claim the exemption
when making qualifying tax-exempt purchases for the project listed on the
certificate. Certificates of exemption will be issued as of the project start
date or the received date of the application. The effective date of the
certificate of exemption will be no earlier than the date the application is
submitted to the department. Before approving or denying the application, the
department may require the applicant to submit additional
documentation.
(b) Effective
January 1, 2024, or the effective date of this rule, whichever is later,
contractors and subcontractors must apply electronically for each
project.
(c) If the department
denies the application, the applicant may appeal the denial in accordance with
§
40-2A-8, Code of Ala.
1975.
(7)
Record Retention Requirement.
(a) A contractor or subcontractor who obtains
a certificate of exemption must comply with all of the provisions of §
40-23-9, Code of Ala.
1975, and must maintain records sufficient to document the
tax-exempt status of qualifying purchases.
(b) Upon renewal of the certificate of
exemption, the contractor or subcontractor shall verify the tax exempt
purchases made for the project in the previous year.
(8)
Violation
Penalties. Any contractor or subcontractor who
intentionally uses a certificate of exemption in violation of §
40-9-14.1 or §
40-9-14.3, Code of
Ala. 1975, will be:
(a) Liable
for the actual sales and use tax due.
(b) Subject to a civil penalty levied by the
department in the amount of not less than a minimum of two thousand dollars
($2,000) or two times any state and local sales or use tax due for the tangible
personal property, whichever is the greater.
(c) May be barred from the use of any
certificate of exemption on any project for up to two years based on the
contractor's or subcontractor's willful misuse of a certificate of exemption.
Contractors and subcontractors may appeal any such decisions in accordance with
§
40-2A-8, Code of Ala.
1975.
(9)
Determination of Qualification According to
Date.
(a) The date of the
sale to, or the purchase, withdrawal, storage, use or consumption by, the
contractor must be used to determine if an otherwise qualifying transaction or
event qualifies for the exemption. Jobs or projects entered into prior to the
applicable dates noted in sections (1) and (4) do not qualify for the exemption
regardless of the transaction date.
(b) For the purpose of this rule, the term
"entered into" means the date that a contractor or subcontractor signs a
contract with a governmental entity defined in section (1) or a statutorily
exempt entity as defined in section (4).
Notes
Author: Michelle Mayberry, Traci Floyd, Ginger L. Buchanan, Lee Ann Rouse, Christy Vandevender
Statutory Authority: Code of Ala. 1975, §§ 11-20-81, 40-2A-7(a) (5), 40-2A-8, 40-9-14.1, 40-9-14.3, 40-23-1, 40-23-4, 40-23-9, 40-23-31, 40-23-83.
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