Exemption for Certain Purchases by Contractors and Subcontractors in conjunction with Construction Contracts with Certain Governmental Entities, Public Corporations, and Educational Institutions

ALABAMA DEPARTMENT OF REVENUE

SALES, USE & BUSINESS TAX DIVISION

SALES & USE TAX RULE

810-6-3-.77. Exemption for Certain Purchases by Contractors and Subcontractors in Conjunction with Construction Contracts with Certain Governmental Entities, Public Corporations, and Educational Institutions.

(1) On and after October 1, 2000, 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 awarded prior to July 1, 2004, with any of the following governmental entities, public corporations, and educational institutions is exempt from all state, county, and municipal sales and use taxes:

(a) The United States government.

(b) The State of Alabama.

(d) A corporation created for public purposes pursuant to a provision of the Constitution of Alabama of 1901, or a general or local law of the State of Alabama.

(e) An educational institution of the United States government, the State of Alabama, or a county or incorporated municipality of the State of Alabama.

(2) The exemption outlined in paragraph (1) shall 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, public corporation, or educational institution that is not itself exempt from state sales and use taxes.

(b) Purchases by a contractor or subcontractor of tangible personal property that is not incorporated into realty pursuant to the contract.

(c) Purchases of tangible personal property made pursuant to any contract awarded, revised, renegotiated, or otherwise altered on or after July 1, 2004. Items purchased after June 30, 2004, pursuant to a contract awarded prior to July 1, 2004, will continue to be exempt for the remainder of the contract, to the extent that any post June 30, 2004, revision or amendment does not require the purchase of additional tangible personal property. (Section 40-9-33, Code of Alabama 1975)

(3) The exemption outlined in paragraph (1) shall not apply to 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 with a state other than the State of Alabama, a county or incorporated municipality of a state other than the State of Alabama, a public corporation created pursuant 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) In order to qualify for the sales and use tax exemption referenced in paragraph (1), contractors and subcontractors who do not qualify as a “dual business” pursuant to Sales and Use Tax Rule 810-6-1-.56 shall apply to the Department of Revenue for a sales and use tax certificate of exemption (Form STE-1). (See Sales and Use Tax Rule 810-6-5-.02) Upon review and approval of the application, the department shall issue the applicant a Form STE-1 which shall be used by the certificate holder to claim the exemption when making qualifying tax-exempt purchases. Before approving or denying the application, the Department of Revenue may require the applicant to submit additional documentation that the property to be purchased tax-exempt with the certificate will be incorporated into realty pursuant to contracts with one or more of the governmental entities, public corporations, or educational institutions enumerated in paragraph (1) or to subcontracts arising from contracts with one or more of the governmental entities, public corporations, or educational institutions enumerated in paragraph (1). If the department denies the application, the applicant may appeal the denial in accordance with Section 40 2A-8, Code of Alabama 1975. A contractor or subcontractor who obtains a Form STE 1 shall comply with all of the provisions of Rule 810 6 5 .02 and shall maintain records sufficient to document the tax-exempt status of qualifying purchases. (Section 40-9-33, Code of Alabama 1975)

(5) Contractors and subcontractors that qualify as a “dual business” and have obtained a sales tax license from the Department of Revenue are not required to obtain a Sales and Use Tax Certificate of Exemption (Form STE-1). In lieu of utilizing the Form STE-1 and following the procedures outlined in Sales and Use Tax Rule 810-6-5-.02, dual business contractors and subcontractors shall provide their sales tax account number to their vendors when purchasing tangible personal property which qualifies for the exemption outlined in paragraph (1), purchase the property without payment of sales or use tax to the vendor, and report the cost of the property withdrawn as a nontaxable withdrawal on their sales tax returns. Dual business contractors and subcontractors shall comply with all of the provisions of Sales and Use Tax Rule 810-6-1-.56 and shall maintain records sufficient to document the tax-exempt status of qualifying withdrawals.

(6) The date of the sale to, or the purchase, withdrawal, storage, use, or consumption by, the contractor shall be used to determine if an otherwise qualifying transaction or event qualifies for the exemption. With respect to jobs or projects commenced prior to, but not completed on, October 1, 2000; otherwise qualifying transactions or events that occur prior to October 1, 2000, shall not qualify for the exemption; otherwise qualifying transactions or events that occur on or after October 1, 2000, shall qualify for the exemption. For purchases or withdrawals made after July 1, 2004, see Rule 810-6-3-.69.02. (Section 40-9-33, Code of Alabama 1975) (Sections 40-2A-7(a)(5), 40-2A-8, 40-23-31, 40-23-83, and 40-9-33, Code of Alabama 1975) (Adopted through APA effective March 27, 2001, amended June 10, 2005)

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