Indiana Clarifies Pass-Through Exemptions for Government Construction Contractors

In their response to a request for guidance, Indiana has issued a ruling discussing the eligibility for construction contractors to use the tax-exempt status of their customers when renting or purchasing equipment. The ruling was requested by a company that rents construction equipment, and asked for clarification when a contractor refused to pay sales tax on rentals of equipment to be used to build a school and provided the school’s tax exemption certificate.

The department pointed out IC 6-2.5-5-16, which allows construction materials to be purchased free of tax when performing a construction contract for an exempt organization or government entity, but clarified that the exempt materials must be incorporated into real property or a structure to qualify. Purchases or rentals of equipment that are used in a contract are no treated as exempt.

The department clarified that the contractor making purchases under the exemption, is required to issue their own exemption certificate to their vendor, not their customer’s. The department also explained that other taxpayers may rely on this ruling for making tax determinations if their information is mostly identical to the facts in this ruling.  If the facts are different or if there are changes in statutes, regulations, or case law, the ruling may no longer be valid, and the taxpayer will not have any protection. (Indiana Department of Revenue, IN—Revenue Ruling No. 2023-02ST, posted 8/30/2023)

Posted on August 30, 2023