|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Sales and Use Tax
As of November 1, 2000, certain contractors and subcontractors who act as agents for governmental bodies or agencies described in G.L. c. 64H, § 6(d) may purchase tangible personal property exempt from tax if (1) the contractor purchases the property for use in fulfilling a consulting or operating contract to provide qualified services in a public project, and (2) the contractor or subcontractor both purchases the property and is reimbursed for it under the contract. G.L. c. 64H, § 6(tt) was added by St. 2000 c. 235, § 16. This Technical Information Release explains the application of this new exemption and how to substantiate a claim under it.
A. Who May Claim The Exemption
1. Consultant contractors and operating contractors ["contractors"] that provide qualified services as defined under the statute may claim this exemption. A person is a contractor for purposes of the § 6(tt) exemption if the person enters into a consulting or operating contract ["contract"] to provide qualified services to a governmental body or agency described in G.L. c. 64H, § 6(d ) ["entity "] and both the agency and the contractor agree that the contractor will act as the agent for the entity with respect to purchases of tangible personal property on its behalf in fulfilling the contract.
2. Consultant subcontractors or operating subcontractors ["subcontractors"] may claim this exemption. A subcontractor is a person who enters into a contract with a contractor to provide qualified services and agrees to act as the agent for the entity with respect to purchases of tangible personal property on its behalf in fulfilling the contract.
A subcontractor is considered reimbursed for the cost of tangible personal property whether it receives funds directly from an entity described in G.L. c. 64H, § 6(d) or indirectly through another contractor or subcontractor. A subcontractor who enters into a contract to provide qualified services with any higher-tiered subcontractor is deemed to be subcontractor.
B. "Qualified services"
Qualified services include any of the following:
1. studying the feasibility or environmental impact of a public project;
2. providing engineering, architectural or other design services necessary to complete a public project;
3. managing the planning, design, or construction of a public project; or
4. managing the operation or maintenance of any publicly owned mass transportation equipment or facilities.
Construction contractors that provide traditional building and construction services, regardless of the trade involved and regardless of the level at which those services are provided, i.e., contractor or subcontractor, are not within the scope of the exemption. However, purchases of tangible personal property by construction contractors that provide traditional building and construction services may be exempt under either G.L. c. 64H, § 6(d), when acting as an agent for a government entity, or G.L. c. 64H, § 6(f). Building or construction contractors that provide traditional building and construction services, but which on occasion enter into a contract to furnish only construction management services or any other "qualified services" with respect to a particular project, would be eligible for the exemption under G.L. c. 64H, § 6(tt) for such a project.
A consulting or operating contract ["contract"] under G.L. c. 64H, § 6(tt) is a contract to provide qualified services to any entity described in G.L. c. 64H, § 6(d). The contract must authorize purchases of tangible personal property to be made on the entity's behalf by the contractor or subcontractor who agrees to provide the qualified services. This authorization must expressly state that the contractor or subcontractor is an agent or subagent of the entity for purposes of making these purchases.
D. "Tangible Personal Property Used in Fulfilling a Contract"
Tangible personal property will be considered used in fulfilling a contract if:
1) acquisition of the property is authorized by the terms of the contract providing for qualified services, and
2) any one or more of the following has occurred:
a) the property is completely expended in the performance of the contract to provide qualified services;
b) title to and possession of the property is turned over to an entity described in G.L. c. 64H, § 6(d) pursuant to the contract;
c) the property becomes an ingredient and component part of tangible personal property that is turned over to the governmental body pursuant to the contract.
Tangible personal property is not to be considered used in fulfilling a contract if it is used to administer, oversee, supply, maintain, or control any of the contractor or subcontractor's own offices, facilities, workshops, vehicles, equipment or business operations. By way of example, construction supplies and office supplies and equipment of the type found not to be exempt under section 6(f) of G.L. c. 64H in the case of S.J. Groves v. State Tax Commission, 342 Mass. 140 (1977) would likewise not be exempt under section 6(tt).
E. "Public Project"
A public project is any project for which qualified services are furnished in connection with the construction, alteration, remodeling, repair, remediation or operation of any public highway, tunnel, bridge, building, real property structure, public mass transportation equipment or facility, or other public work owned by or held in trust for the benefit of any entity agency mentioned in G.L. c. 64H, § 6 (d), the cost of which is funded, in whole or in part, by funds appropriated to or authorized for expenditure by any such entity.
III. Substantiation requirements
Contractors and subcontractors purchasing tangible personal property for use in fulfilling contracts to provide qualified services in a public project must substantiate exempt purchases by giving their vendors a properly completed Form ST-5C (Contractors Sales Tax Exempt Purchase Certificate) containing the name of the contractor, the sale price, and the date of each separate sale made under this certificate. In addition, the purchaser must submit a copy of the exempt entity's Form ST-2, (Certificate of Exemption).
If the exempt governmental entity does not provide its contractors and subcontractors with a Form ST-2, contractors and subcontractors must provide other evidence that the entity on whose behalf they are making purchases is exempt under G.L. c. 64H, § 6 (d). Such evidence must include the information required in Part A of Form ST-5C and should include government purchase orders and/or other information demonstrating the entity's exempt status. Contractors and subcontractors must indicate on the face of Form ST-5C that they are claiming exemption for property used fulfilling a contract to provide qualified services in a public project under the provisions of G.L. c. 64H, § 6(tt). A description of the kind and quantity of property, or other documentary evidence such as receipts, invoices, etc. must be attached or noted on the back of the form.
Bernard F. Crowley, Jr.,
Acting Commissioner of Revenue
June 15, 2001