006.05.95 Ark. Code R. 005

Current through Register Vol. 49, No. 9, September, 2024

Rule 006.05.95-005 - Regulation to GR-21.1 Gross Receipts

This regulation is promulgated in order to administer and enforce Act 3 87 of 1995 which became effective on February 20 1995.

GR-21.1 PURCHASES BY CONTRACTORS - INCREASE lN SALES AND USE TAX RATES:

A. Materials purchased for use in construction contracts that become recognizable components of the completed project are subject to state and local sales and use tax. In accordance with Act 387 of 1995, these materials are exempt from certain increases in state or local sales and use taxes if the following conditions are satisfied:

1. The materials must be used in a construction contract entered into before the effective date of the tax increase.

2. The materials must be purchased prior to the expiration of five (5) years from the effective date of the tax increase..

3. The construction contractor shall complete and sign the "Certificate of Proof for Contractor's Entitlement to Exemption from Sales and Use Tax Increase", a copy of which follows this regulation and which is available from the Sales and Use Tax Section, Revenue* Division of the Department of Finance and Administration. The construction contractor shall furnish a completed copy of the form to each seller of exempt property for each contract and shall retain a copy of the Certificate with his purchase records.

4. The. seller must keep adequate records to identify all exempt materials, sold. The seller must retain the completed Certificate described in paragraph (3) above. The seller's invoices or other sales documents must contain a statement that the seller has received the Certificate which is retained in his records.

EXAMPLE A: Pulaski County local sales and use tax is increased by 1 % effective October 1, 1995. Purchases of materials used in completing construction contracts entered into prior to October 1, 1995 will be exempt from the additional 1% tax until September 30, 2000.

EXAMPLE B: On November 1, 1995, a construction contractor purchases a hammer and 50 pounds of nails for use in framing an apartment building. The construction contractor furnishes all necessary information required by this regulation to the seller. The construction contract was signed prior to the October 1, 1995 tax increase. The additional tax increase is due on the sale of the hammer because the hammer will not become a recognizable part of the building. The nails are exempt from the tax increase because the nails, although they can't be seen, are a recognizable part of the building.

B.Consumer use tax reports: Some construction contractors report the use tax due on materials purchased from out of state sellers directly to the Revenue Division of the Department of Finance and Administration. When such a construction contractor claims the exemption granted by Act 3 87 of 1995, the construction contractor shall keep all records required by this regulation including maintaining copies of purchase invoices and the contracts for which the exemption is claimed.

C.Burden of Proof: The burden of proving entitlement to an exemption is on the taxpayer. In the case of an audit of a seller's business, the burden is on the seller to keep records adequate to prove the validity of the claimed exemptions. In the case of an audit of a construction contractor's business, the burden is on the construction contractor to keep records adequate to prove the validity of the claimed exemptions. Failure to do so will result in the exemptions being disallowed and applicable tax, penalty and interest being assessed to the taxpayer.

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006.05.95 Ark. Code R. 005

11/6/1995