W. Va. Code R. § 110-15-109

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-15-109 - Contracting for Governmental Entities

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 This exemption was repealed October 1, 1990 except for contracts meeting the requirements set forth in Section 109.2.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.

W. Va. Code R. § 110-15-109