Current through Register Vol. 49, No. 9, September, 2024
A. Materials purchased for use in
construction contracts that become recognizable components of the completed
project are subject to state and local sales and use tax. A contractor that
purchases these materials is entitled to a rebate on certain increases in state
and local sales or use taxes if the following conditions are satisfied:
1. The materials must be used in a
construction contract entered into before the effective date of the tax
increase;
2. The materials must be
purchased within five (5) years from the effective date of the tax increase;
and
3. The contractor paid the
additional sales or use tax to the seller.
Example 1: Pulaski County local sales and use tax is
increased by 1% effective October 1, 2008. Purchases of materials used in
completing construction contracts entered into prior to October 1, 2008 (but
after January 1, 2008), will be eligible for a rebate of the additional 1% tax
until September 30, 2013.
Example 2: On November 1, 2008, a construction contractor
purchases a hammer and 50 pounds of nails for use in framing an apartment
building. The construction contract was signed prior to the October 1, 2008
(but after January 1, 2008), tax increase. The additional tax increase is due
on the sale of the hammer because the hammer will not become a recognizable
part of the building. The nails are subject to the rebate because the nails,
although they cannot be seen, are a recognizable part of the building.
4. This rule is not applicable to
cost-plus contracts that allow the contractor to pass any additional tax on to
the principal as a part of the contractor's cost.
5. For the purposes of the rebate,
"construction contract" means a contract to construct, manage, or supervise the
construction, erection, or substantial modification of a building or other
improvement or structure affixed to real property. Construction contract does
not mean a contract to produce tangible personal property.
B. CLAIMS FOR CREDIT OR REBATE.
1. Self Rebate. A contractor that holds an
active Arkansas sales and use tax permit and files excise tax reports with the
Department may offset the amount of credit or rebate claimed against any
municipal and county sales or use tax due to be remitted with the return.
a. The contractor must list each local code
and the amount of additional tax paid to the seller on the return.
b. If the total amount of the credit or
rebate is being requested is larger than the local tax due for that month, then
the contractor will deduct the remaining credit or rebate from the state tax
due on the return and remit the difference.
c. The contractor must maintain
documentation, such as photocopies of the invoices or receipts provided by the
seller, for which the credit or rebate is being requested.
2. File a Claim. A contractor that qualifies
for a rebate, but is not required to file a sales or use tax return as provided
in GR-21.1(B)(1), may file a claim for a credit or rebate by completing the
Claim for Refund Form 2004-6.
C. BURDEN OF PROOF. The burden of proving
entitlement to the rebate is on the contractor. The contractor is required to
keep adequate records to identify the purchases that are eligible for the
rebate and follow the process outlined in this rule. Failure to do so will
result in the rebate being disallowed.
D. CONTRACTS EXECUTED PRIOR TO JANUARY 1,
2008.
1. Materials purchased for use in
construction contracts that become recognizable components of the completed
project are exempt from certain increases in state or local sales and use taxes
if the following conditions are satisfied:
a.
The construction contract was executed prior to January 1, 2008;
b. The materials must be used in a
construction contract entered into before the effective date of the tax
increase; and
c. The materials must
be purchased within five (5) years from the effective date of the tax
increase.
2. The
construction contractor shall furnish a completed exemption certificate or
"Certificate of Proof for Contractor's Entitlement to Exemption from Sales and
Use Tax Increase" to each seller of exempt property for each contract and shall
retain a copy of the certificate with his purchase records.
3. The contractor must keep adequate records
to identify all exempt materials sold. The seller's invoices or other sales
documents must contain a statement that the seller has received the certificate
which is retained in his records.
4. The exemption is not applicable to
cost-plus contracts that allow the contractor to pass any additional tax on to
the principal as a part of the contractor's cost.
5. Consumer use tax reports. Some
construction contractors report the use tax due on materials purchased from
out-of-state sellers directly to the Department. When such a construction
contractor claims the exemption, the construction contractor must keep all
records required by this rule including maintaining copies of purchase invoices
and the contracts for which the exemption is claimed.
6. The burden of proving entitlement to an
exemption is on the contractor. In the case of an audit of a seller's business,
the burden is on the seller to keep adequate records pursuant to GR-79. In the
case of an audit of a construction contractor's business, the burden is on the
construction contractor to keep records adequate to prove the validity of the
claimed exemptions. Failure to do so will result in the exemptions being
disallowed and applicable tax, penalty, and interest being assessed.
Ark. Code Ann. §
26-52-427
