A taxpayer, that sells and installs carpets and floor coverings, was found liable for use tax on its purchases of materials for contracts with exempt entities. Under the contracts in question, the taxpayer would purchase the materials and install them for the exempt entities. Therefore, it was the Commissioner’s position that the taxpayer was acting as a contractor when it installed the carpeting and responsible for use tax on the materials being installed in the absence of a properly executed purchasing agent agreement. Minnesota law provides that if the exempt entity purchases materials directly, that purchase is exempt from taxation, but a purchase by a contractor for use in an improvement to the tax exempt entity’s real property is taxable.
The only way in which purchases by a contractor or subcontractor would be exempt from sales tax would be if there is a written contract, separate from the contract for installation, in which the contractor is appointed the purchasing agent and title and responsibility for the materials remains with the exempt entity. In addition, the construction contract can not be a lump sum contract or similar type of contract with a guaranteed maximum price covering both materials and labor.” A contractor may be appointed a purchasing agent only if the exempt entity initially advertises separate bids for material and labor. (Neil’s Floor Covering, Inc. v. Commissioner of Revenue, Minnesota Tax Court, No. 8016, October 20, 2009)