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Last Updated: 7/29/2016

Purchasing Agent Contracts with Exempt Organizations

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Generally, building contractors must pay sales or use tax on building materials they buy for contracts with tax-exempt organizations such as churches, schools, and government agencies.

The only way a contractor may buy these materials without paying tax is if the exempt organization designates the contractor as its purchasing agent through a written contract. There must be two separate contracts – one for labor and one for materials.

The written (labor and materials) contracts must clearly show that the exempt organization:

  • Appoints the contractor as its purchasing agent

  • Takes title to all materials and supplies at the point of delivery

  • Has the risk of loss for all materials and supplies (If the contract does not specify as to risk of loss, proof of insurance coverage or other evidence may be accepted.)

  • Is responsible for all defective materials and supplies (including those incorporated into the real estate)

Note: These requirements apply to the contractor and any subcontractors who supply both materials and labor. See Minnesota Rule 8130.1200, subpart 3(C) and 3(D).

How do I claim this exemption?

If you’re a contractor, give your suppliers a completed Form ST3, Certificate of Exemption.

  • At the top of the form, check the box to indicate that you are a contractor and have a purchasing agent agreement. Enter the organization’s name and specific project.
  • Under “Reason for exemption,” check “Other” and write in the exemption code for purchasing agent. (See the form instructions.)

You must keep records that:

  • Show a purchasing agent relationship exists (such as a copy of the contract and evidence of the organization’s exempt status)
  • Identify all materials and supplies purchased for the exempt project

What is covered by this exemption?

This exemption applies to building materials, equipment, and supplies that become part of the improvement to real property.

It does not apply to the purchase, lease, or rental of equipment used by the contractor to complete the construction contract.