This regulation is promulgated in order to administer and
enforce Act 3 87 of 1995 which became effective on February 20 1995.
GR-21.1
PURCHASES BY CONTRACTORS -
INCREASE lN SALES AND USE TAX RATES:
A.
Materials purchased for use in construction contracts that become recognizable
components of the completed project are subject to state and local sales and
use tax. In accordance with Act 387 of 1995, these materials are exempt from
certain increases in state or local sales and use taxes if the following
conditions are satisfied:
1. The materials
must be used in a construction contract entered into before the effective date
of the tax increase.
2. The
materials must be purchased prior to the expiration of five (5) years from the
effective date of the tax increase..
3. The construction contractor shall complete
and sign the "Certificate of Proof for Contractor's Entitlement to Exemption
from Sales and Use Tax Increase", a copy of which follows this regulation and
which is available from the Sales and Use Tax Section, Revenue* Division of the
Department of Finance and Administration. The construction contractor shall
furnish a completed copy of the form to each seller of exempt property for each
contract and shall retain a copy of the Certificate with his purchase
records.
4. The. seller must keep
adequate records to identify all exempt materials, sold. The seller must retain
the completed Certificate described in paragraph (3) above. The seller's
invoices or other sales documents must contain a statement that the seller has
received the Certificate which is retained in his records.
EXAMPLE A: Pulaski County local sales and use tax is increased
by 1 % effective October 1, 1995. Purchases of materials used in completing
construction contracts entered into prior to October 1, 1995 will be exempt
from the additional 1% tax until September 30, 2000.
EXAMPLE B: On November 1, 1995, a construction contractor
purchases a hammer and 50 pounds of nails for use in framing an apartment
building. The construction contractor furnishes all necessary information
required by this regulation to the seller. The construction contract was signed
prior to the October 1, 1995 tax increase. The additional tax increase is due
on the sale of the hammer because the hammer will not become a recognizable
part of the building. The nails are exempt from the tax increase because the
nails, although they can't be seen, are a recognizable part of the
building.
B.
Consumer use tax reports: Some construction
contractors report the use tax due on materials purchased from out of state
sellers directly to the Revenue Division of the Department of Finance and
Administration. When such a construction contractor claims the exemption
granted by Act 3 87 of 1995, the construction contractor shall keep all records
required by this regulation including maintaining copies of purchase invoices
and the contracts for which the exemption is claimed.
C.
Burden of Proof:
The burden of proving entitlement to an exemption is on the taxpayer. In the
case of an audit of a seller's business, the burden is on the seller to keep
records adequate to prove the validity of the claimed exemptions. In the case
of an audit of a construction contractor's business, the burden is on the
construction contractor to keep records adequate to prove the validity of the
claimed exemptions. Failure to do so will result in the exemptions being
disallowed and applicable tax, penalty and interest being assessed to the
taxpayer.
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