Contracts with Exempt Organizations

When you contract with an exempt organization (churches, schools, government agencies), you will generally owe sales tax on purchases of materials and supplies.

An organization’s exempt status cannot be used to purchase materials for use in a lump-sum contract covering both labor and materials for the construction.

You may only buy materials tax exempt when the exempt organization designates you as its purchasing agent.

The written contract must clearly show all of the following:

• the appointment was made between the contractor and exempt organization
• the exempt organization:
  • takes title to all materials and supplies at the point of delivery
  • assumes the risk of loss for all materials and supplies
  • is responsible for all defective materials and supplies including those incorporated into realty

These requirements apply to the general contractor and subcontractors who supply both materials and labor.

You must keep documentation to show that a purchasing agent relationship exists. For example:

• a letter indicating the above information
• copies of the written contract showing all the requirements listed above
• evidence of the organizations exempt status