South Carolina Code of Regulations › Chapter 117 - DEPARTMENT OF REVENUE › Article 11 - SALES AND USE TAX REGULATIONS › Section 117-314.11 - Federal Government Construction Contracts

Current through Register Vol. 48, No. 6, June 28, 2024
Sales to, or purchases by, a construction contractor of
				tangible personal property for use in a federal government construction project
				in South Carolina for which the contractor has a written contract with the
				federal government are not subject to the sales and use tax under Code Section
				12-36-2120(29)
				if the contract necessitating the purchase provides that title and possession
				of the property is to transfer from the contractor to the federal government at
				the time of purchase or after the time of purchase and such property actually
				transfer to the federal government in accordance with the contract or the
				property becomes part of real or personal property owned by the federal
				government or is to transfer to the federal government.
The purpose of this regulation is to address the application of
				Code Section
				12-36-2120(29)
				to sales to, or purchases by, a construction subcontractor of tangible personal
				property for use in a federal government construction project in South Carolina
				for which the subcontractor has a written contract with a general contractor
				who has a written contract for the project with the federal government.
For purposes of this regulation, the following example and
				information will be used to illustrate the application of the exemption:
The federal government is constructing a building on a military
				base located in South Carolina. After following its contracting procedures, the
				federal government has entered into a written contract with a general
				construction contractor ("Contractor A") to construct the building.
Contractor A has hired and entered into a written contract with
				a construction subcontractor ("Subcontractor B") to construct a certain portion
				of the building.
Subcontractor B in turn hires and enters into a written
				contract with a construction subcontractor ("Subcontractor C") to construct a
				certain portion of the building under its contract.
Contractor A, Subcontractor B, and Subcontractor C each
				purchase the material necessary to complete the project from various
				suppliers.
Based on the example and information, the exemption in Code
				Section
				12-36-2120(29)
				 for federal government contracts applies as
				follows:
1. Sales to, or purchases by,
			 Contractor A of tangible personal property for use in a federal government
			 construction project in South Carolina as described in the facts are exempt
			 from the sales and use tax under Code Section
			 12-36-2120(29)
			 if the written contract necessitating the purchase provides that title and
			 possession of the property is to transfer from Contractor A to the federal
			 government at the time of purchase or after the time of purchase and such
			 property actually transfers to the federal government in accordance with the
			 contract or the property becomes part of real or personal property owned by the
			 federal government, or is to transfer to the federal government.
2. Sales to, or purchases by, Subcontractor B
			 of tangible personal property for use in a federal government construction
			 project in South Carolina as described in the facts are subject to the sales
			 and use tax since Subcontractor B does not have a written contract with the
			 federal government.
However, if Subcontractor B is an agent for the Contractor A,
				then sales to, or purchases by, Subcontractor B of tangible personal property
				for use in a federal government construction project in South Carolina as
				described in the facts are not subject to the sales and use tax if all other
				provisions of the exemption found in Code Section
				12-36-2120(29)
				 are met and all books and records support
				the existence of an agency relationship. (See information below concerning an
				agency relationship.)
3.
			 Sales to, or purchases by, Subcontractor C of tangible personal property for
			 use in a federal government construction project in South Carolina as described
			 in the facts are subject to the sales and use tax since Subcontractor C does
			 not have a written contract with the federal government.
However, if Subcontractor C is a subagent for Subcontractor B
				and Contractor A has specifically granted Subcontractor B the authority to
				appoint a subagent that can bind Contractor A, then sales to, or purchases by,
				Subcontractor C of tangible personal property for use in a federal government
				construction project in South Carolina as described in the facts are not
				subject to the sales and use tax if all other provision of the exemption found
				in Code Section
				12-36-2120(29)
				 are met and all books and records support
				the existence of an agency relationship. (See information below concerning an
				agency relationship.)
The Department will recognize the existence of an agency
				relationship with respect to the exemption in Code Section
				12-36-2120(29),
				such a determination must be made a case-by-case basis and that if it is
				determined an agency relationship does not exist the Department will assess the
				applicable party (depending on the facts) under the sales and use tax law
				(supplier or contractor or subcontractor) for the tax due. (Note: Regardless of
				the facts and circumstances, the agency must be in writing.) However, the
				Department has established the following "safe harbor" for which it will
				recognize an agency relationship with respect to the above facts and the
				exemption in Code Section
				12-36-2120(29):
1. Purchases by Subcontractor B: Contractor A
			 has appointed, in writing, Subcontractor B as its agent when purchasing
			 tangible personal property for the federal government contract and that as a
			 result of this agency relationship Contractor A is liable for payment of such
			 purchases if Subcontractor B fails to pay the supplier and is also liable for
			 the payment of any sales and use tax for any property that was purchased by
			 Subcontractor B in its capacity as agent and that does not qualify for the
			 exemption in Code Section
			 12-36-2120(29)
			 if Subcontractor B fails to pay the tax.
Purchases by Subcontractor C: Subcontractor B has appointed, in
				writing, Subcontractor C as its subagent when purchasing tangible personal
				property for the federal government contract and Contractor A has specifically
				granted Subcontractor B the authority to appoint a subagent that can bind
				Contractor A and that as a result of this subagency relationship Contractor A
				is liable for payment of such purchases if Subcontractor C fails to pay the
				supplier and is also liable for the payment of any sales and use tax for any
				property that was purchased by Subcontractor C in its capacity as subagent and
				that does not qualify for the exemption in Code Section
				12-36-2120(29)
				if Subcontractors B or C fail to pay the tax.
2. The purchase order of Subcontractor B or
			 Subcontractor C submitted to the supplier must clearly state that Subcontractor
			 B or Subcontractor C is the agent of Contractor A in purchasing the
			 property.
3. Contractor A has
			 applied for and received an exemption certificate from the Department for
			 purposes of the exemption in Code Section
			 12-36-2120(29).
			 Copies of the application for the exemption, Form ST-10G, can be found on the
			 Department's website at
www.sctax.org
. The
			 federal contractor's exemption certificate that will be issued by the
			 Department will be Form ST-404.
4.
			 Contractor A must provide a copy of the exemption certificate to Subcontractor
			 B and must have completed Section C of the copy indicating that Subcontractor B
			 and Subcontractor C are its agents in purchasing tangible personal property for
			 the federal construction project. Subcontractor B will in turn provide a copy
			 to its subagent, Subcontractor C.
Note: Only Contractor A can complete Section C of the exemption
				certificate. Therefore, when Contractor A has specifically granted
				Subcontractor B the authority to appoint a subagent that can bind Contractor A,
				Subcontractor B will be required to inform Contractor A, who then must list
				Subcontractor C as its agent on a copy of the certificate.
5. Subcontractor B or Subcontractor C must
			 provide a copy of the certificate to the supplier when purchasing tangible
			 personal property exempt under Code Section
			 12-36-2120(29).
6. All books and records support the
			 existence of an agency relationship.