An electrical subcontractor working on a project for the University of Alabama was denied their request for a sales and use exemption certificate by the Alabama Tax Tribunal. Alabama law requires that the Department of Revenue issue an exemption certificate to a licensed contractor working on a government construction project. In this case, the subcontractor worked on the project from May until July 2020 and applied for the exemption certificate in August 2020. As a subcontractor, the company claimed that they did not receive the information required to apply for the exemption from the primary contractor until August, and that the language of the state laws and regulations did not specify that the exemption certificate be issued prior to or during the project.
The Tax Tribunal disagreed, concluding that the language of the Administrative code used the present tense when referring to exempt purchases, only allowing the certificate to be used on purchases made during a project, and not retroactively applied to purchases made for a project that had already concluded. Because the exemption referred to the exemption certificate being used for the purchase of materials to become part of a project, and not being used for materials purchased that already became part of the project, the subcontractor could not acquire an exemption certificate after the fact.
Exemption certificates, especially for contractors, can be difficult to navigate, and it’s common for exemptions for construction to be deprioritized during the thick of a project. However, in many states, including Alabama, the exact timing of when your company applies for or receives documentation of an exemption may have the potential to cost or save you a significant amount in tax. Both contractors and their vendors should stay informed of the requirements of each state where they do business, or they may end up paying an unexpected tax bill.
Black Electrical Contractors, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. INC. 20-753-JP, July 22, 2022, ¶202-020