Alabama § 40-9-14.3 - Certificates of Exemption to Statutorily Exempt Entities for Certain Tax Exempt Projects.

§ 40-9-14.3. Certificates of Exemption to Statutorily Exempt Entities for Certain Tax Exempt Projects.

(a) For the purposes of this section, the term “statutorily exempt entity” means any person or company, as those terms are defined under Section 40-23-1, that has been granted a statutory exemption from the payment of Alabama sales and use taxes levied pursuant to Chapter 23, including any person or company listed in this article. The term does not include any governmental entity, as defined in Section 40-9-14.1(a).

(b)(1) The Department of Revenue shall issue a certificate of exemption to the statutorily exempt entity for each tax exempt project.

(2) The Department of Revenue shall grant a certificate of exemption from state and local sales and use taxes to any contractor licensed by the State Licensing Board for General Contractors, or any subcontractor working under the same contract, for the purchase of building materials, construction materials and supplies, and other tangible personal property that becomes part of the structure that is the subject of a written contract for the construction of a building or other project for and on behalf of a statutorily exempt entity that is exempt from the payment of sales and use taxes.

(c) The use of a certificate of exemption for the purchase of tangible personal property pursuant to this section shall include only tangible personal property that becomes part of the structure that is the subject of the construction contract. Any contractor or subcontractor purchasing any tangible personal property pursuant to a certificate of exemption shall maintain an accurate cost accounting of the purchase and use of the property in the construction of the project.

(d) A contractor who has an exemption from sales and use tax for the purchase of materials to use on a statutorily exempt entity project shall file, in a manner as prescribed by the department, reports of all exempt purchases. The reports shall be filed as a prerequisite to renewal of a certificate of exemption.

(e)(1) The department may assess any contractor or subcontractor with state and local sales or use taxes on any item purchased with a certificate of exemption not properly accounted for and reported as required.

(2) Any contractor or subcontractor who intentionally uses a certificate of exemption in violation of this section, in addition to the actual sales or use tax liability due, shall be subject to a civil penalty levied by the department in the amount of two times any state and local sales or use tax due for the property but not less than two thousand dollars ($2,000) and, based on the contractor’s or subcontractor’s willful misuse of the certificate of exemption, may be barred from the use of any certificate of exemption on any project for up to two years.

(f) The department may adopt rules to implement this section in order to effectuate the purposes of this section and to provide for accurate accounting and enforcement of this section.

(g) In bidding the work on a tax exempt project, the bid form shall provide for an accounting for the tax savings.

(h) The intent of this section is to lower the administrative cost for the statutorily exempt entity, contractor, and subcontractor for construction projects on behalf of a statutorily exempt entity. It is not the intent of this section to change the basis for determining professional services from fair market value, which may include sales and use taxes.

(i) This section shall be operative for any contracts with a statutorily exempt entity entered into on or after January 1, 2024, and shall not apply to any contracts entered into prior to January 1, 2024, nor shall this section apply to any contract change order or contract extensions, including revised, renegotiated, or altered contracts, when the original contract was entered into prior to January 1, 2024.