(G) Sales Tax Exempt

Office of Legislative Research
Research Report
September 2, 2016

2016-R-0149

SALES TAX EXEMPTION FOR BUILDING

MATERIALS USED IN STATE CONSTRUCTION

PROJECTS

By: Rute Pinho, Principal Analyst
John Rappa, Chief Analyst

ISSUE

Explain the state sales and use tax exemption for building materials that contractors purchase for use in state construction projects. How does the Department of Revenue Services (DRS) enforce this exemption? Do other states provide a comparable one?

SUMMARY

State law allows contractors to purchase building materials for use in construction contracts with state agencies and other exempt entities (e.g., municipalities and nonprofit organizations) without paying sales and use tax on them. The exemption applies to materials permanently installed or placed in a construction project, such as the bricks and mortar used to construct an office building. It does not apply to the equipment, tools, and supplies the contractor uses to fulfill the contract (e.g., scaffolding, tractors, pipe cutters, trowels, wrenches) (Conn. Agencies Regs. § 12426-18). To receive the exemption, contractors must present to sellers a DRS certificate attesting that the materials will be used for an exempt entity’s project. The contractor must sign the certificate and declare under penalty of false statement that the exempted items will be permanently installed or placed in the exempt entity’s project. Sellers do not have to prove that a sale is exempt from the sales and use tax if the applicable certificate was properly completed and taken in good faith. According to Susan Sherman, DRS’s legislative program manager, DRS uses its audit process to verify that purchases for which contractors have claimed the exemption were eligible.

Phone (860) 240-8400
http://www.cga.ct.gov/olr
[email protected]

Connecticut General Assembly
Office of Legislative Research
Stephanie A. D'Ambrose, Director

Room 5300
Legislative Office Building
Hartford, CT 06106-1591

We identified 15 other states with comparable sales and use tax exemptions for building materials used in state construction projects. Like Connecticut, these states distinguish between materials that become part of the project and materials used or consumed to complete it. In 10 of the states, the exemption applies only to building materials that are physically incorporated into the construction project (e.g., lumber, windows, doors, and plumbing and electrical materials). In the remaining five states (Massachusetts, Missouri, New Jersey, Texas, and Vermont),