Sales Tax State Activity Update - August 2004

Alabama Contractor May Not Claim School Board Exemption

The Alabama Administrative Law Division upheld a use tax assessment against a contractor for purchases of building materials made pursuant to a roofing contract with the Brewton City Board of Education.

An Alabama contractor contracted with the Brewton City Board of Education (“Board”) to replace an existing roof at a local high school. The contract indicated that the Board would issue purchase orders for the materials, pay the vendors directly for the materials and subtract the cost of the materials from the contract amount. In an effort to reduce the administrative burden, the contractor purchased the materials tax-free in its own name and subsequently used them to complete the contract. Since the contractor did not pay sales tax to its vendors for the purchase of materials, the Board reduced the contract amount and payment to the contractor by the amount of sales tax included in the contractors bid amount.

Under Alabama sales and use tax law, the sale of materials to a contractor for use in the performance of a real estate contract is a taxable retail sale. In addition, the sale of tangible personal property to a municipal school board is exempt from sale and use tax. In order to for the exemption to apply, the property must be billed to and paid by the municipal school board. In this case, the materials to complete the contract for the Board were billed to and paid by the contractor in its own name. Therefore, the assessment of use tax for purchases of materials used by the contractor in the performance of the roofing contract is upheld.

The full text may be accessed at: http://216.226.178.107/aljrules/03-388.pdf

(A-1 Roofing Co., Inc. v. Dep't of Revenue, Alabama Administrative Law Division, Docket No. U. 03-388, 04/02/04) 08/04

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