Tax Rules: Final: 5703-9
5703-9-14 Sales and use tax; construction contracts;
exemption certificates
(A) A "construction contract" is any agreement, written or
oral, pursuant to which tangible personal property is or is
to be transferred and incorporated into real property, as
defined in section 5701.02 of the Revised Code, so as to
become a part thereof without regard to whether it is new
construction or an addition to or alteration of an existing
building or structure. A "construction contractor" is any
person who performs such an agreement, whether as prime
contractor or subcontractor.
(B) Tangible personal property that is permanently affixed to
real property, but that primarily benefits the business
conducted on the premises by the occupant, is a "business
fixture," as defined in section 5701.03 of the Revised Code,
and retains its status as personal property after such
affixation is made. An agreement to transfer and install a
business fixture is a sale and not a construction contract.
The transfer and affixation of personal property where title
to the personal property does not transfer to the owner or
lessee of the premises is a sale and not a construction
contract. The item affixed remains personal property since
the failure to transfer title displays an intention not to
make the affixation permanent.
Tangible personal property that is temporarily affixed during
construction, such as temporary electricity or water service
hook-ups, fencing, construction elevators, shoring lumber,
and concrete forms, is not incorporated into real property
for sales and use tax purposes. This applies even if these
items remain affixed after construction is completed due to
inadvertence, convenience, or economic necessity.
(C) The sale and installation of the following items is never
a construction contract and such transactions are to be
treated as the sale and installation of tangible personal
property for sales tax purposes:
(1) Carpeting, including carpet padding, tack strips,
adhesive, and similar materials that are integral and
necessary components of a carpet installation transaction;
(2) Agricultural land tile as defined in division (B)(5)(a)
of section 5739.01 of the Revised Code;
(3) Portable grain bins as defined in division (B)(5)(b) of
section 5739.01 of the Revised Code; and
(4) Trees, shrubs, sod, seed, fertilizer, mulch, and other
tangible personal property transferred as part of a
landscaping and lawn care service as defined in division (DD)
of section 5739.01 of the Revised Code.
This provision shall not be construed to alter or affect the
classification of such items after installation is completed.
(D)(1) A construction contractor who purchases materials or
taxable services for incorporation into real property is the
consumer of those materials or services and shall pay sales
or use tax on their purchase price, except as provided by
paragraph (F) of this rule. The construction contractor is
the consumer, even if a subcontractor provides the actual
labor to incorporate those materials into the real property.
Nevertheless, a construction contractor may purchase exempt
from tax those materials or services that will be
incorporated:
(a) Into real property under a construction contract with the
United States government or its agencies, the state of Ohio,
or an Ohio political subdivision;
(b) Into real property that is owned, or will be accepted for
ownership at the time of completion, by the United States
government or its agencies, the state of Ohio, or an Ohio
political subdivision;
(c) Into a house of public worship or religious education or
a building used exclusively for charitable purposes by a
nonprofit organization operated exclusively for charitable
purposes as defined in division (B)(12) of section 5739.02 of
the Revised Code;
(d) Into the original construction of a sports facility under
section 307.696 of the Revised Code;
(e) Into real property in another state, if the materials or
services, when sold to a construction contractor in that
state for incorporation into real property in that state,
would be exempt from a tax on sales levied in that state;
(f) Into a horticulture structure or livestock structure as
defined in section 5739.01 of the Revised Code for a person
engaged in the business of horticulture or producing
livestock; or
(g) Into a hospital facility entitled to exemption under
section 140.08 of the Revised Code.
(2) When claiming exemption under paragraph (D)(1) of this
rule, the contractee and contractor must issue exemption
certificates in accordance with paragraphs (I) and (J) of
this rule. The contractee shall be deemed to be the consumer
of all materials and services purchased under the claim of
exemption and liable for the tax on the incorporated
materials or services in the event the tax commissioner
ascertains that the contractee was not entitled to exemption.
(E) A construction contractor who also makes substantial
sales of the same types of tangible personal property that
the contractor incorporates into real property in performing
construction contracts may purchase those types of tangible
personal property excepted from sales and use tax on the
basis of resale under division (E) of section 5739.01 of the
Revised Code. The contractor, unless granted direct payment
authority, must have a consumer's use tax account with the
department of taxation and accrue and pay use tax on the
price of all materials consumed in performing construction
contracts, in accordance with rule 5703-9-04 of the
Administrative Code.
Similarly, a construction contractor who purchases materials
without payment of the tax because the contractee has claimed
an exemption under division (D) of this rule, must pay use
tax on any materials not used on the exempt job and consumed
by the contractor in a taxable manner.
(F)(1) A person who manufactures or fabricates items of
tangible personal property , and then sells some of the items
and incorporates some into real property, must elect whether
to be treated as a manufacturer or as a construction
contractor on the purchase of raw materials incorporated into
the manufactured items. The manufacturer/construction
contractor need not notify the tax commissioner of such
election and may elect to treat purchases of raw materials
for distinct manufactured items differently. However,
complete records must be maintained to show how the person
elected to treat each purchase of raw materials.
(a) If the person elects to be treated as a manufacturer, the
purchase of all raw materials may be exempted from the tax on
the basis that they will be incorporated as a material or
part into an item manufactured for sale under division
(B)(43)(a) of section 5739.02 of the Revised Code. The
manufacturer must accrue and pay use tax on the price of any
self-manufactured item subsequently consumed in performing a
taxable construction contract, or in any other taxable
manner, in accordance with paragraph (A) of rule 5703-9-21 of
the Administrative Code.
(b) If the person elects to be treated as a construction
contractor, the person must pay sales or use tax on the
acquisition cost of all raw materials, unless such materials
are ultimately consumed in performing a nontaxable
construction contract under paragraph (D) of this rule. The
construction contractor must pay sales or use tax on all raw
materials, and no refund of such tax will be allowed, even
though the raw materials are incorporated into an item
manufactured for sale. If such sale is a retail sale, the
construction contractor is acting as vendor and must
appropriately collect sales tax on such transaction.
(2) The election required by paragraph (F)(1) of this rule
applies only to the purchase of raw materials that will
become parts or components of a manufactured items. Machinery
and equipment used by the person in manufacturing shall be
taxed based upon its quantified primary use without regard to
how the manufacturer/construction contractor elects to treat
the raw materials for sales and use tax purposes.
(G) The contractee may, or upon request of the contractor
pursuant to the procedure specified in division (C) of
section 5739.03 of the Revised Code shall, certify to the
contractor what portions of a contract will be, at the
completion of the contract, classified as personal property
and what portions will be classified as real property. The
fact that a certification has been made by the contractee
must be noted in every written construction contract, and the
contractor, subcontractors, and contractee shall each
maintain a copy of the certification with the job
documentation. If the tax commissioner subsequently
determines that property certified by the contractee as
personal property is, in fact, real property, the contractee
shall be deemed the consumer of all materials incorporated
into such real property and may be assessed sales or use tax
thereon along with applicable interest and penalty.
The certification of the contractee has application only to
the tangible personal property installed or incorporated
pursuant to the contract. Equipment, tools, and supplies used
by the contractor in performing the contract shall be taxed
based upon their primary use without regard to the
contractee's certification.
(H) Machinery, equipment, tools, supplies, and other tangible
personal property purchased or leased by a construction
contractor and used or consumed in performing a construction
contract, including a contract specified in paragraph (D) of
this rule, are taxable. The repair or installation of these
items is also taxable.
(I)(1) A contractee claiming an exemption specified in
division (D) of this rule must complete and deliver to the
contractor a construction contract exemption certificate. If
the contractee is a governmental entity, a government
official must sign under the "political subdivision" section
of the certificate. All other contractees claiming exemption
must sign under the "owner/contractee" section. If there is
one prime contractor on the job, the contractee need only
supply one exemption certificate to the prime contractor.
The contractor should make copies of the construction
contract exemption certificate signed by the contractee and
use those copies when making purchases of materials that will
be incorporated into real property pursuant to the
construction contract. A prime contractor must provide copies
to all subcontractors for their use in purchasing materials
for the job. The contractor or subcontractor must sign each
certificate copy used when purchasing materials.
The original exemption certificate must be retained in the
records of the contractor. A copy of the certificate also
must be retained in the records of each subcontractor.
(2) Rather than using copies of the construction contract
exemption certificate when making purchases of materials, the
contractor or subcontractor may use a contractor's exemption
certificate when purchasing materials for incorporation into
real property pursuant to a contract where the contractee
claims exemption under paragraph (D) of this rule.
(J) Forms required to be prescribed by rule are hereby
prescribed for use as a construction contract exemption
certificate and as a contractor's exemption certificate. The
forms may be obtained from the department of taxation and are
available on the department’s web site. They may be
reproduced as needed. To be valid, a construction contract
exemption certificate must be signed by the contractee
claiming exemption. Each certificate, or copy of a
certificate, submitted to a vendor must be signed by the
contractor or subcontractor making the purchase. A
certificate covers all sales of materials made by the vendor
to a contractor or subcontractor for incorporation into real
property under that construction contract. The vendor must
maintain the certificate to document the reason tax was not
charged.
To be valid, all necessary signatures must be dated and all
certificates must specify the reason for exemption and must
clearly identify the contract and specify the job site.
(K) The following forms are incorporated in this rule by
reference:
(1) The construction contract exemption certificate, revised
March 15, 2004;
(2) The contractor’s exemption certificate, revised March 15,
2004.
Effective: 12-16-04
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5701.02, 5739.01, 5739.02, 5739.03, 5741.01,
5741.02
Prior effective dates: 5-31-68, 7-2-81, 10-18-82, 7-20-92