In many states, construction materials purchased for church projects are exempt from sales tax.
To qualify for the exemption, contractors usually must:
- Obtain an exemption certificate or number from the church
- Present the certificate to the supplier when purchasing materials
Case Study: Hess, Inc. v. Department of Revenue
In Hess, Inc. v. Department of Revenue, 663 N.E.2d 123 (Ill. App. 1996), the court addressed this exact situation.
What happened:
- A contractor bought construction materials for a church project.
- The contractor presented the church’s exemption certificate to the supplier.
- The supplier did not charge sales tax.
Later, during an audit, the Illinois Department of Revenue claimed the supplier still owed sales tax.
Their argument: suppliers cannot rely solely on exemption certificates; they must verify how the materials were actually used.
The Court’s decision:
The Illinois Appellate Court rejected the state’s claim.
It ruled that suppliers are entitled to rely on valid exemption certificates without conducting further verification.
(Source: Leagle)
Proper planning protects your church from unexpected tax liabilities.
Key Takeaways for Church Treasurers
To properly manage sales tax exemptions during construction projects:
- Maintain Current Exemptions:
Make sure your church’s sales tax exemption certificate is valid, active, and renewed as required by state law. - Clarify Contractual Obligations:
When signing contracts for goods or services:- Clearly state the church’s tax-exempt status.
- Outline who is responsible for any sales tax if issues arise later due to non-compliance.
Conclusion
Properly managing sales tax exemptions in church construction projects is critical for legal compliance and good financial stewardship.
By:
- Keeping exemption certificates up to date
- Defining tax responsibilities clearly in contracts
churches, contractors, and suppliers can protect themselves and confidently navigate these important tax rules.
