In many states, sales of construction materials to contractors are exempt from sales tax if the materials are used in church construction projects. To qualify, contractors typically must obtain an exemption certificate or number from the church and present it to the supplier.
Case Study: Hess, Inc. v. Department of Revenue
In Hess, Inc. v. Department of Revenue, 663 N.E.2d 123 (Ill. App. 1996), a contractor purchased materials for a church construction project and presented the church’s exemption certificate to the supplier, who then did not charge sales tax. Upon audit, the state revenue department claimed the supplier owed sales tax, arguing that suppliers cannot solely rely on exemption certificates and must verify the actual use of materials. The Illinois Appellate Court rejected this claim, ruling that suppliers are entitled to rely on valid exemption certificates without further verification.
Source: Leagle
Implications for Church Treasurers
To ensure compliance with sales tax exemptions in church construction projects:
- Maintain Current Exemptions: Ensure your church’s sales tax exemption is active and renewed as required by state law to avoid unexpected liabilities.
- Clarify Contractual Obligations: When entering contracts for goods or services, explicitly state the church’s tax-exempt status and outline responsibilities for any potential sales tax assessments due to non-compliance.
Conclusion
Understanding and properly managing sales tax exemptions in church construction projects is essential for compliance and financial stewardship. By maintaining current exemption certificates and clearly defining tax responsibilities in contracts, churches, contractors, and suppliers can navigate these exemptions effectively.