By now, most Idahoans should know that the Idaho State Legislature raised the Idaho sales tax by one percent to a total of six percent, on the sale of all goods. The sales tax increase went into effect on October 1, 2006, and applies to all building materials purchased for incorporation into any construction project within the state of Idaho. This increase will impact the profitability of many competitively-bid projects and will obviously impact the bottom line of every project that was bid based upon the presumption that the sales tax would remain at five percent through the completion of the project.
Fortunately, many Idaho contractors are entitled to tax relief that will protect them against the impacts of the sales tax increase. Contractors are entitled to a one percent refund on the purchase of all qualifying building materials purchased since the new sales tax went into effect. Building materials generally qualify if they were purchased, used, stored, or otherwise incorporated into any real property pursuant to a construction contract that meets the following three requirements:
• The contract must be in writing and signed on or before September 1, 2006 (a written bid submitted on or before September 1, 2006, will also qualify if a written contract was subsequently entered into based upon the bid);
• The contract/bid price must have been based upon the five percent sales tax;
• The contract/bid must require the cost of any sales tax to be borne by the contractor. There does not appear to be any limitation upon the number of qualifying contracts for which a contractor can seek a refund.
Because a contractor must be negatively impacted by the new sales tax in order to seek a refund, the following types of contracts do not qualify: a) cost-plus contracts in which the property owner agrees in advance to pay the costs of all materials incurred by the builder; and b) any contract that states the property owner will pay for the sales tax or that the property owner will bear the costs of any increase in the sales tax. Additionally, equipment purchase contracts, rental contracts, and contracts for the retail sale of building materials cannot qualify either.
Contractors may apply for the refund regardless of whether or not they have a sales and/or use tax permit. Moreover, the procedure for filing for a refund differs only slightly for contractors with a permit as opposed to those without one. In order to file for a refund, every contractor must submit the following:
a) a completed Sales Tax Refund Claim Form (TCR), which is available from the Idaho State Tax Commission or online at its Web site;
b) a signed copy of a qualifying contract;
c) copies of dated invoices showing all qualifying materials purchased pursuant to the qualifying contract;
d) a description of the claim such as, “The materials identified on the attached invoices were used pursuant to the attached contract, which qualifies for the five percent sales/use tax rate”; and
e) a schedule summarizing and identifying all amounts subject to the refund on the attached invoices. The summary schedule is only necessary, however, if it will help a tax auditor to understand your refund claims. A schedule may be particularly helpful if you are not seeking to recover the full amount of every item identified on each invoice.
If you have a sales/use tax permit, then you still must submit a Form 850 and/or Form 850-U return form. You should submit the TCR and supporting documentation with this form, and the total refund requested must be identified on its adjustment line (typically line 7).
If you do not have a sales or use tax permit, then you do not have to fill out a sales/use tax return form. Instead, you simply send your TCR and supporting documentation to the following address: Attn: Contractor Refund Claim, Idaho State Tax Commission, P.O. Box 36, Boise, ID 83722-0410. Once the claim has been submitted, the Idaho State Tax Commission will review the claim and, if there is a net refund, will pay the refund with interest from the date the claim was filed.
You can only file for one refund on each qualifying project. Consequently, the date you should file for your refund is dependent upon the completion of the project. Keep in mind that the statute of limitations for filing a claim is three years.
The timing of your claim may also have other tax implications so treat this refund as you would treat any tax issue. Consult your accountant and your attorney early and often to determine how to maximize the benefits this program can have for company.
Richard Stacey is an attorney with the law firm McConnell Wagner Sykes + Stacey PLLC practicing in the areas of complex business litigation and construction law. He is a member of the Association of Trial Lawyers of America, and he serves on the Executive Committee of the Board of Directors of the Boise State Alumni Association.
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