109.1. Exemption from March 1, 1989 through
September 30, 1990. Purchase of materials for use in fulfillment of contracts
with the United States, the State of West Virginia, its political subdivisions
and corporate entities created by the West Virginia Legislature.
Contractors are generally taxable on purchases of materials
for use in their contracting activities. However, during the period from March
1, 1989 through September 30, 1990, contractors could purchase exempt from
consumer sales and use taxes materials for use in fulfillment of written
contracts to provide contracting services to certain governmental agencies, if
the materials were installed, affixed or incorporated into a building to be
used by the governmental agency for a governmental or proprietary purpose. This
exemption was repealed October 1, 1990 except for contracts meeting the
requirements set forth in Section 109.2.
109.1.1. The exemption from tax for purchases
of materials by contractors for use in governmental contracts applies only if
the following four conditions are met:
109.1.1.1. The contractor must enter into a
written contract on or before September 15, 1990, or meet another transition
rule set forth in Section 109.2, with the United States or the State of West
Virginia or their political subdivisions including county and municipal
governments or a corporate entity created by the West Virginia Legislature;
and
109.1.1.2. The contract must be
for the construction, alteration, improvement, repair or decoration of a
building, structure or real property which is a capital improvement to the
property; and
109.1.1.3. The
materials purchased must be actually installed in, affixed to or incorporated
into the building or structure or real property; and
109.1.1.4. The building, structure or real
property must be or will be owned and used by the governmental entity for a
governmental or proprietary purpose.
109.1.2. Example 1. ACE Construction Company
enters into a contract with a West Virginia municipality to build a public
swimming pool and related facilities which will be owned and operated by the
municipality. The contractor applies for and receives a government contractor's
material purchase certificate which he may use to purchase tax free materials
that will be incorporated into this project by giving a copy of the material
purchase certificate to each vendor. As used here, the term "materials"
includes building and construction materials, machinery and equipment and any
other tangible personal property that is incorporated into the project. This
exemption does not apply to the contractor's purchase of any other tangible
personal property such as materials not incorporated into the project, tools,
construction equipment and construction supplies. Nor does this exemption apply
to leases of tangible personal property or to the purchase of taxable services.
Example 2. Same facts as example one except that ACE
Construction Company subcontracts the excavating and earth moving portion of
its contract to Excavators, Inc. The materials and work provided by the
subcontractor in fulfillment of this subcontract are exempt from consumers
sales and use taxes because they are provided to fulfill the contractor's
contract with the municipality. The subcontractor may use the contractor's
material purchase certificate. The subcontractor must pay consumers sales and
use taxes on his purchase of any materials, etc., not incorporated into the
swimming pool project. The subcontractor's lease of tangible personal property,
e.g., a bulldozer, or purchase of taxable service, e.g., repairs to
construction equipment, are taxable. The material purchase certificate may not
be used for items such as these.
Example 3. The X County Building Authority agrees to sell
industrial revenue bonds to acquire certain land and construct a manufacturing
facility which it will lease to Manufacturing Company. The County Building
Authority enters into a contract with ACE Construction Company to build a
turn-key facility in conformity with the plans, specifications and requirements
of the Manufacturing Company. The primary lease term is for twenty (20) years.
At the end of twenty (20) years, the manufacturing company may exercise its
option to purchase the facility for $100. In accordance with generally accepted
accounting principles and for federal income tax purposes, the Manufacturing
Company will capitalize the cost of the facility and take depreciation on the
machinery, equipment and other tangible personal property. The rent it pays to
the Building Commission may not be expensed. Because the manufacturing facility
will not be owned and used by the X County Building Commission for a
governmental or proprietary purpose, the governmental contractor's exemption
does not apply to materials and other tangible personal property which ACE
Construction Company purchases for incorporation into the manufacturing
facility.
109.2.
Transition Rules for Repeal of the Exemption. - The exemption for the purchase
of materials by contractors for use in governmental contracts was generally
repealed as of October 1, 1990. However, the exemption continues for the
following:
109.2.1. Purchases of tangible
personal property after October 1, 1990 if used in fulfillment of a written
contract executed and legally binding on the parties on or before September 15,
1990.
109.2.1.1. The term contract does not
include change orders wherein the scope of work contained in the original
contract is exceeded to a degree significant enough to require additional
charges to the customer. Purchases by a contractor for use in contracting
activities performed under such change orders are subject to consumer sales and
use tax.
109.2.2.
Purchases of tangible personal property purchased on or after October 1, 1990
if used in fulfillment of a written contract entered into after September 15,
1990, pursuant to a written bid made on or before September 15, 1990 to the
extent the bid was subsequently incorporated into the contract. The bid must be
binding on the contractor.
109.2.3.
Purchases of tangible personal property after October 1, 1990 for consumption
or use in fulfillment of a written contract for the construction of a new
improvement to real property, the construction or operation of which was
approved by a federal or state regulatory body prior to September 15, 1990 or
pursuant to a federal grant awarded prior to September 15, 1990. Examples of
federal or state regulatory bodies which must approve new construction include,
but are not limited to, the West Virginia Public Service Commission, the West
Virginia Health Care Cost and Review Authority, the Federal Energy Review
Commission and the West Virginia School Building Authority. Building permits
issued by a local governmental entity are not issued by a federal or state
regulatory body within the meaning of this section.
109.3. Methods of Claiming Governmental
Contract Exemption. - A contractor or subcontractor entitled to the exemption
outlined in Section 109.1 may assert the exemption in one of two ways when
purchasing materials prior to July 1, 1990. The contractor or subcontractor may
either present his direct pay permit or a government contractor material
purchase certificate to the vendor to purchase the materials tax exempt.
Beginning July 1, 1990, the government contract exemption may only be claimed
by presenting a government contractor material purchase certificate to the
vendor.
109.3.1. Direct Pay Permit. - A
direct pay permit includes a direct pay permit number, which may be presented
to the vendor when purchasing items or services for use in business. When the
direct pay permit number is given to the vendor, no tax is charged to the
purchaser at the time of sale. However, each month the direct pay permit holder
must file a direct pay permit consumers sales and use tax return with the Tax
Commissioner showing the total amount of purchases, amount of taxable
purchases, amount of exempt purchases, and the amount of tax due on the taxable
purchases. The direct pay permit holder is responsible for directly remitting
the amount of tax due on taxable purchases to the Tax Commissioner. In order to
obtain a direct pay permit, application must be made to the Tax Commissioner.
The applicant must have a valid business registration certificate issued in
accordance with W. Va. Code '11-12-1 et
seq.
109.3.2. Government Contractor
Material Purchase Certificate. - The contractor or subcontractor may if he
wishes use a government contractor's material purchase certificate obtained by
the prime contractor from the Tax Commissioner to assert the governmental
contract exemption for materials. A government contractor's material purchase
certificate, unlike a direct pay permit, may only be used to purchase materials
which are exempt because of the governmental contract exemption outlined in
Section 109.1 of these regulations.
109.3.2.1. Application for Government
Contractor Material Purchase Certificate. - A government contractor's material
purchase certificate may only be obtained by the prime contractor making timely
application to the Tax Commissioner. The application shall be in the form
prescribed by the Tax Commissioner. When applying for the government
contractor's material purchase certificate, the prime contractor must provide
the Tax Commissioner with a list of all work sublet to others, indicating the
amount of work to be performed, and the names and addresses of each
subcontractor and such other information as the Tax Commissioner may require.
The application for the government contractor's material purchase certificate
may be obtained from the entity awarding the contract. A government contractor
material purchase certificate will expire upon completion of the contract named
therein.
109.3.2.2. Use of the
Government Contractor's Material Purchase Certificate. - In order to assert the
governmental contract exemption for material outlined in Section 109.1 of these
regulations, the contractor or subcontractor must present a copy of the
government contractor's material purchase certificate to the vendor when
purchasing materials for use as a component part of a capital improvement to a
building or structure or improvement to real property in fulfillment of a
governmental contract. The vendor will not charge the contractor or
subcontractor tax on the exempt materials upon receipt of the material purchase
certificate number.
109.4. Vendor's Responsibilities in Relation
to Governmental Contract Exemption. - As long as the vendor, in good faith,
takes the direct pay permit number or government contractor material purchase
certificate from the contractor or subcontractor and notes the number thereof
on the invoice, sales slip or other record of sale, the vendor will be absolved
of all duties and responsibilities imposed for the collection of sales and use
tax on the sale. Failure to take the direct pay permit number or government
contractor material purchase certificate or collect the amount of tax due will
result in the vendor being liable for the amount of tax not
collected.
109.5. A contractor who
claims that tangible personal property is exempt from consumers sales and use
taxes because it will be incorporated into a government contract will be held
strictly accountable for the use of such property and will be liable for
payment of consumers sales and use taxes on any tangible personal property
purchased for use in a tax exempt government contract that is not used in such
a contract.
