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103 KAR 26:070. Construction contractors.
RELATES TO: KRS 139.210, 139.240, 139.260, 139.270, 139.310, 139.340, 139.710, 139.730
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: To interpret the sales and use tax law as it ap-
plies to transactions involving contractors making improvements to real property.
Section 1. All sales to contractors, subcontractors, builders or owners of building materials, fix-
tures and supplies which are to be incorporated or fabricated into any structure or improvement to
real estate by the process of erecting, remodeling, or repairing such structure or improvement are
subject to the sales or use tax at the time of sale to the contractor, subcontractor, builder or own-
er. This applies irrespective of the type of contract (lump sum and materials, cost plus fixed fee, or
other) for which the purchase is made. A person, firm, association, partnership or corporation en-
gaged exclusively in construction work as a contractor or subcontractor is not required to hold a
retail sales tax permit and such a permit will not be issued to these persons.
Section 2. Definitions. (1) The terms "contractor" and "subcontractor" are used herein in the
common and ordinary acceptance of the terms and include both general contractors and subcon-
tractors engaged in such building trades as carpentry, bricklaying, wall to wall carpeting, cement
work, steel work, plastering, sheet metal work (including aluminum siding), roofing, tile and terraz-
zo work, cabinet work, electrical work, plumbing, central heating and air conditioning, painting,
interior decorating, and storm window and permanent awning work. The terms "contractor" and
"subcontractor" as used herein do not include any person who repairs tangible personal property.
(2) The term "construction contract" as used herein means a contract for erecting, remodeling,
or repairing a building or other structure on land and includes lump sum, cost plus, and time-and-
materials contracts, but does not include a contract for the sale and installation of machinery, ap-
pliances or equipment which the contractor has sold but which do not become part of the real
property. (In this latter case, the contractor must apply for a retail sales and use tax permit and
remit tax on his sales price of the machinery, appliances or equipment.) Examples of taxable
sales include refrigerators, oven-ranges and dishwashers which are not built-in, laundry applianc-
es, window unit air conditioners and space heaters.
(3) The term "materials" means all of the tangible personal property, other than fixtures, which
enters into and becomes a permanent part of a structure. Examples of materials are: bricks,
builders hardware, cement, gravel, sand, macadam, asphalt, lumber, electrical wiring, wall board
and coping, roofing, guttering, aluminum siding, storm doors and windows, and cabinets.
(4) The term "fixtures" means things which are accessory to a building and do not lose their
identity as accessories but which do become a permanent part of the realty. Examples of fixtures
are: lighting fixtures, plumbing fixtures, hot water heaters, furnaces, boilers, central heating units,
elevators, hoists, burglar and fire alarm fixtures, central air conditioning and built-in refrigeration
units, built-in oven-ranges and dishwashers, and cabinets.
(5) The term "improvements to real estate" as used in this administrative regulation includes,
but is not limited to, buildings, roads, sewers, dams, railroads, and fences.
Section 3. A contractor may not claim that the purchase of materials or fixtures is not subject to
the tax because the property is to be used in fulfilling a contract with the federal government,
state government or political subdivision thereof, or any department, agency, or instrumentality of
the federal government, state government or political subdivision thereof, or with a religious, edu-
cational, or charitable institution.
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Section 4. A Kentucky supplier and any out-of-state supplier who is the holder of a permit for
collection of the use tax, shall bill and collect Kentucky tax from the contractor. A contractor, un-
less he falls within the exception described in Section 5 of this administrative regulation, will not
be the holder of a retail sales and use tax permit and is not entitled to execute a resale certificate.
The supplier is not to accept any number of the series 900000 as evidence that the purchaser is
the holder of a permit. Such numbers are issued to contractors for the purpose of reporting on a
Consumer's Use Tax Return. Nor is the supplier to accept any resale certificate from a contractor-
retailer who holds a permit under the exception to this rule, for any materials or supplies which the
supplier, in fact, knows are to be used by such purchaser in his own construction business. Any
contractor, subcontractor, builder or owner who purchases such items from an out-of-state suppli-
er who is not licensed to collect the Kentucky use tax shall report and pay such use tax directly to
the cabinet on a Consumer's Use Tax Return based upon his purchase price of the property.
Section 5. In some instances, contractors and subcontractors are in a dual business which in-
cludes selling machinery, appliances or equipment as described in Section 2 of this administrative
regulation or reselling to the general public on an "over-the-counter" basis the same type of build-
ing materials and supplies as is used by them in their own construction work. A person operating
such a dual business is referred to in this administrative regulation as a contractor-retailer, and
constitutes the sole exception under which a contractor will be issued a permit. Because of the
retail business he operates, such a contractor-retailer must make application for a Retail Sales
and Use Tax Permit. Upon issuance of the permit, a contractor-retailer may then execute resale
certificates for the machinery, appliances or equipment purchased for resale and for all items of
inventory which he purchases for resale in his retail business. He may also issue a resale certifi-
cate for any items that he regularly holds in stock when he does not know at the time of purchase
whether such items will be resold or used by him in his own construction business.
Section 6. In the event any contractor, subcontractor, builder, or contractor-retailer is the manu-
facturer of the building material or supplies he uses in his construction business, the tax shall ap-
ply to the sales price to him of all tangible personal property which enters into the manufacture of
such materials or supplies.
Section 7. Any contractor-retailer who has no fixed place of business from which he regularly
operates may be required to post a security as provided in KRS 139.660. (SU-54-2; 1 Ky.R. 703;
eff. 5-14-1975; 17 Ky.R. 1128; eff. 11-21-1990; TAm eff. 5-20-2009; TAm eff. 6-22-2016.)