C7 SISTEMAS DE PENALIZACIÓN C7.1 Regla que se Suprime

a. What are the sales tax requirements of purchasing materials and supplies for use in a construction project? (e.g., is the tax based on the lump sum amount of the contract, or is the tax based on the supplies and materials used by the contractor, or some other alternative – please explain)?

If a construction contract is deemed to be a sales contract, tax is based upon the lump sum amount of the contract. That is, tax is levied upon all cost of materials used in construction and/or manufacturing, plus on labor and the profit portion of the sale contract. If, however, a construction contract is deemed to be a “true construction contract” tax is based upon only materials used in construction and/or manufacturing. (See IV (a) for further details).

Sales of materials or services involved in a lump sum or unit price construction contract are exempt from new or additional sales or use taxes imposed by the state or any political subdivision. The contract must have been entered into and reduced to writing prior to the effective date of the statute or ordinance levying same or to sales or services involved in such contracts entered into and reduced to writing within ninety days thereafter, if such contracts involved contractual obligations undertaken prior to such effective date and were computed and bid on the basis of sales tax at the rates effective and existing prior to such effective date. La R.S. Section 47:305.11.

b. Does the State allow contractors to purchase materials exempt: 1) for resale, 2) under direct permit authority; 3) for use in a project of an exempt organization; 4) other? If yes, what documentation must the contractor retain to evidence the exempt character of the transaction?

1) In general sales to contractors are considered retails sales and are taxable. However, when contractors are engaged in the retail business of selling materials to other

contractors, consumers or users he must be registered with the state and must provide a resale certificate (Forms LGST-9 or LGST-9A (non resident)). La R.S. Reg. 4311. If, at the time of purchase, the contractor is unable to segregate that portion of the materials he will resell from that portion which he will use or consume in the fulfillment of this contract, he should give a resale certificate to the seller. That contractor must include in his gross sales, upon which the tax is to be computed, all proceeds from retails sales. In addition, he must report and pay the tax on all materials he uses in the performance of his contracts, based on the cost price of such materials. La R.S. Section 150-857. 2) A general construction contractor licensed under La R.S. Section 37:2150 who has a

construction project in a parish that exceeds fifty thousand dollars may obtain a direct pay number issued by the collector of such parish on behalf of all governmental agencies within that parish. A construction subcontractor may apply for its own direct pay number, however only one direct pay number shall be issued per project. However, all contractors are entitled to the benefit of the use of the general contractors direct pay certificate. La R.S. Section 33:2717.

In general taxpayers must meet the following requirements for a direct payment number (La R.S. Section 47:303.1):

a) The taxpayer is engaged primarily in manufacturing at a facility within the state tangible personal property for resale

b) The taxpayer has paid all taxes due in a timely manner;

c) The taxpayer has an annual average of $15 minion of taxable purchases or leases for three calendars years prior to application and for each subsequent three year period; and

d) The taxpayer maintains adequate procedures and records for timely reporting and payment of state and political subdivision taxes.

3) Contractors purchasing tangible personal property or taxable services pursuant to a contract with the United States, State and local governments and nonprofit organizations are usually the consumers of the property or services and must pay the tax when they purchase the property or services.

However, Louisiana law provides that a sale of corporeal movable property Intended for future sale to the State or local governments or nonprofit organizations is not taxable when the title to the property is transferred to the government or its agencies prior to the property’s incorporation into a final product. See Opinion of the Attorney General, Nos. 96-309 (1996) 89-248 (1998). La R.S. Sec. 47:301(10)(g). Thus, where a contractor is merely acting as a purchasing agent for entity and takes title to the property, the

contractor is not subject to tax. Kern-Limerick, Inc. v. Scurlock, 347 US 110, 74 SCt 403 (1954).

4) Sales of materials that will be further processed into articles of tangible personal property to be sold at retail are not taxable. However, materials that are used in the manufacturing process are taxable if they do not become a recognizable and identifiable component of the end product. Reg. 4301(10).

Also exempt from tax are services or leases of property to be used in performance with contracts with the U.S. Navy for construction or overhaul of U.S. naval vessels La R.S., Sec. 47:301(7)(c), (14)(h).

Construction of low-income housing – Builders who construct or renovate housing in compliance with the standards of sec. 40:582.7, relating to low and moderate-income housing. La R.S. Sec 47:315.2. Although tax is paid on the materials as purchased, a refund is available when construction is complete and compliance is demonstrated. III. Improvements to Realty

a. Please describe the sales and use tax implications of improving realty. Please address factors used to determine whether the installation of property constitutes a capital improvement

Sales of materials and supplies to owners of real property to be used by them in erecting, altering, improving or repairing buildings or other improvements are sales to final buyers and are not sales for resale and are therefore taxable.

Contractors engaged in constructing or improving real property, whether on a lump sum or a cost-plus basis, are deemed to be purchasers and consumers of the materials used by them, and as such are taxable. La R.S. Section 150-860.

A contractor who constructs immovable property is not liable for sales or use taxes relating to the labor portion of its overall contract expense in building an immovable, but rather is only liable for sales and use taxes calculated on the materials that it purchases or uses in completing its contract. American Sign and Indicator Corp. v. City of Lake Charles, 320 So.2d 234

(La.App.3d Cir. 1975). However, A subcontractor is liable for sales taxes on the materials, labor, and profit portions of its contracts that provide only for the fabrication and delivery to the general contractor of items of tangible personal property, regardless of whether these items may

later be incorporated into an immovable structure. Modern Homes & Equip. Co. v. Collector of Revenue, 422 So.2d 1237 (La.App. 1st Cir. 1982) and Griffin & Zimmer Contracting Co. v. Mouton, 231 So.2d 644 (La. App. 1st Cir. 1970).

(See IV Repair and Maintenance Section).