Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
139.210,
139.240,
139.260,
139.270,
139.310,
139.340,
139.660,
139.710,
139.730
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
131.130 authorizes the Department of Revenue
to promulgate administrative regulations for the assessment, collection,
refunding, administration, and enforcement of Kentucky tax laws. This
administrative regulation interprets the sales and use tax law as it applies to
transactions involving contractors, subcontractors, and contractor-retailers
making improvements to real property.
Section
1. Definitions.
(1)
"Construction contract" means a contract:
(a)
1. For erecting, remodeling, or repairing a
building or other structure on land; or
2. Replacing, furnishing, or installing
materials or fixtures permanently to real property; and
(b)
1.
Includes lump sum, cost plus, and time-and- materials contracts; and
2. Includes a contract for the sale and
installation of machinery, appliances, or equipment which the contractor has
sold and permanently affixed to real property.
(2)
(a)"Contractor" and "subcontractor" means the
common and ordinary acceptance of the terms and includes both general
contractors and subcontractors engaged in such building trades as:
1. Carpentry;
2. Bricklaying;
3. Wall to wall carpeting;
4. Cement work;
5. Steel work;
6. Plastering;
7. Sheet metal work (including aluminum
siding);
8. Roofing;
9. Tile and terrazzo work;
10. Cabinet work;
11. Electrical work;
12. Plumbing;
13. Central heating and air
conditioning;
14.
Painting;
15. Interior
decorating;
16. Storm window work;
or
17. Permanent awning
work.
(b) "Contractor"
and "subcontractor" does not include any person who repairs tangible personal
property.
(3)
"Contractor-retailer" means contractors and subcontractors that operate in a
dual business, which includes selling machinery, appliances, or equipment, or
reselling to the general public on an "over-the-counter" basis the same type of
building materials and supplies as is used by them in their own construction
work, along with their sales of construction contracts. Examples of machinery,
appliances, or equipment sold by contractor-retailers include:
(a) Refrigerators;
(b) Oven-ranges and dishwashers which are not
built-in;
(c) Laundry
appliances;
(d) Window unit air
conditioners; or
(e) Space
heaters.
(4) "Fixtures"
means things which are accessory to a building and do not lose their identity
as accessories, but which do become a permanent part of the realty. Examples of
fixtures are:
(a) Lighting fixtures;
(b) Plumbing fixtures;
(c) Hot water heaters;
(d) Furnaces;
(e) Boilers;
(f) Central heating units;
(g) Elevators;
(h) Hoists;
(i)
Security and fire alarm fixtures;
(j) Central air conditioning;
(k) Built-in refrigeration units;
(l) Built-in oven-ranges and
dishwashers;
(m) Storm doors and
windows; or
(n) Cabinets.
(5) "Improvements to real estate"
means improvements such as those made to:
(a)
Buildings;
(b) Roads;
(c) Sewers;
(d) Dams;
(e) Railroads; or
(f) Fences.
(6) "Materials" means all of the tangible
personal property, other than fixtures, which enters into and becomes a
permanent part of a structure. Examples of materials are:
(a) Bricks;
(b) Builders hardware;
(c) Cement;
(d) Gravel;
(e) Sand;
(f) Macadam;
(g) Asphalt;
(h) Lumber;
(i)
Electrical wiring;
(j) Wall board
and coping;
(k) Roofing;
(l) Guttering; or
(m) Aluminum siding.
Section 2. Sales to Contractors.
(1) All sales to contractors, subcontractors,
builders, or owners of building materials, fixtures, and supplies which are to
be incorporated or fabricated into any structure or improvement to real estate
by the process of erecting, remodeling, replacing, or repairing the structure
or improvement are subject to the sales or use tax at the time of sale to the
contractor, subcontractor, builder, or owner. This applies irrespective of the
type of contract (lump sum and materials, cost plus fixed fee, or other) for
which the purchase is made.
(2) A
contractor, subcontractor, or builder shall not claim that the purchase of
materials or fixtures is exempt from the tax because the property is to be used
in fulfilling a construction contract with the federal government, state
government or political subdivision thereof, or any department, agency, or
instrumentality of the federal government, state government or political
subdivision thereof, or with a religious, educational, or charitable
institution.
Section 3.
Contractors Not Issued a Sales Tax Permit. A person, firm, association,
partnership, or corporation engaged exclusively in construction work as a
contractor or subcontractor is not required to hold a retail sales tax permit
and a permit will not be issued to these persons.
Section 4. Contractor-retailers. A
contractor-retailer constitutes the sole exception under which a contractor
will be issued a sales tax permit. Because of the retail business operated, a
contractor-retailer shall make an application for a Retail Sales and Use Tax
Permit. Upon issuance of the permit, a contractor-retailer may then execute
resale certificates for the machinery, appliances, or equipment purchased for
resale and for all items of inventory purchased for resale in their retail
business. The contractor-retailer may also issue a resale certificate for any
items that they regularly hold in stock if they do not know at the time of
purchase whether the items will be resold or used in their own construction
business.
Section 5. Suppliers.
(1) A Kentucky supplier and any out-of-state
supplier who is the holder of a permit for collection of the use tax shall bill
and collect Kentucky tax from the contractor. A contractor, unless it falls
within the exception described in Section 4 of this administrative regulation,
will not be the holder of a retail sales and use tax permit and shall not
execute a resale certificate.
(2)
The supplier shall not accept any number of the 900000-series as evidence that
the purchaser is the holder of a permit. These numbers are issued to
contractors for the purpose of reporting on a Consumer's Use Tax Return. The
supplier shall not accept any resale certificate from a contractor-retailer who
holds a permit under the exception to this rule for any materials or supplies
which the supplier, in fact, knows are to be used by the purchaser in his or
her own construction business.
(3)
Any contractor, subcontractor, builder, or owner who purchases tangible
personal property or digital property from an out-of-state supplier who is not
licensed to collect the Kentucky use tax shall report and pay the use tax
directly to the department on a Consumer's Use Tax Return based upon the
purchase price of the property.
Section 6. Contractors Manufacturing Their
Own Materials or Supplies. If any contractor, subcontractor, builder, or
contractor-retailer is the manufacturer of the building material or supplies
they used in their construction business, the tax shall apply to the purchase
price of all tangible personal property which enters into the manufacture of
the materials or supplies.
Section
7. Contractors With No Fixed Place of Business. Any
contractor-retailer without a fixed place of business from which they regularly
operate may be required to post a security as provided in
KRS
139.660.
Section 8. Contractor Examples and Scenarios.
The list in this section shall provide general examples and the taxable
treatment for certain common scenarios encountered by contractors.
(1) An entity that contracts for the
provision and installation of wall-to-wall carpeting into real property is a
contractor. The contractor shall pay sales or use tax on the purchase of the
carpet, materials, fixtures, and any other tangible personal property that goes
into the charge to the customer on the cost of the construction
contract.
(2) An entity which
installs a sidewalk into real property is a contractor. The contractor shall
pay sales or use tax on their purchase of the concrete, supplies, materials,
fixtures, and any other tangible personal property that goes into the provision
of the construction contract. The contractor shall not bill sales tax as a
separate charge to the customer on the cost of the construction
contract.
(3) An entity that
repairs a hot water heater that has been installed into real property is a
contractor. The contractor shall pay sales or use tax on their purchase of the
supplies, materials, fixtures, and any other tangible personal property that
goes into the repair of the hot water heater. The contractor shall not bill
sales tax as a separate charge to the customer on the cost of the
repair.
(4) A contractor that sells
and delivers a freestanding refrigerator is operating as a contractor-retailer.
The contractor-retailer may issue a resale certificate for the purchase of the
refrigerator to be resold. The contractor-retailer shall charge sales tax on
the retail sale of the refrigerator to the end customer along with any delivery
or installation charges associated with the sale of the refrigerator.
STATUTORY AUTHORITY:
KRS
131.130