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Sales During Transitional Periods (Transitional Sales)
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There is a transitional period for taxable services when a sales tax rate change affects the billing period for a taxable service that begins before—and ends after—the effective date of the rate change.
Note: Transitional periods do not affect sales of tangible personal property (goods). Sales or use tax applies on the date the buyer takes possession or title of the goods, whichever happens first.
Types of Sales Affected
Transitional periods may affect:
- Businesses that sell taxable services
- Construction contractors
- Maintenance agreements
You need to check your invoices to see if sales tax was correctly applied to these services, if they are affected by a transitional period.
If you were not charged sales tax or the sales tax charged is incorrect, you must calculate and pay any use tax due. For more information, see Use Tax for Businesses or Use Tax for Individuals.
Handling Transitional Sales
How you handle a transitional sale depends on if:
- The sales tax rate increased
- The sales tax rate decreased
- You have a construction contract
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When the sales tax rate increases, the new rate applies to the first billing period that starts on or after the effective date of the change.
A rate increase also includes when a sales tax exemption expires or a new law makes a service taxable.
Note: When the bill or invoice separately lists the service dates, you may apply the sales tax rate based on the dates of each service.
When the sales tax rate decreases, the new rate applies only to bills issued on or after the effective date of the change. It does not matter when the services took place.
A rate decrease also includes when a new tax exemption takes effect.
Note: When the bill or invoice separately lists the service dates, you may apply the sales tax rate based on the specific dates of each service.
Tangible personal property or services purchased in relation to a preexisting bid or contract are exempt from the tax or a tax rate increase for six months from the effective date of the law change. The exemption is for the change in tax on items or services if purchased during the transitional period.
Note: This does not apply when an exemption ends.
To qualify for this exemption the preexisting bids and contracts must meet certain criteria.
For construction contracts
- The construction contract must have documentation of a bona fide written lump-sum or fixed price construction contract in force from before the effective date of the tax change.
- The contract must not provide allocation of future taxes.
- For each contract, the contractor must give the seller documentation of the contract for which an exemption is claimed.
For construction bids
- The building materials or services must be used pursuant to an obligation of a bid or bids, the bid or bids must be submitted and accepted before the effective date of the tax change.
- The bid or bids must not be able to be withdrawn, modified, or changed without forfeiting a bond.
- For each qualifying bid, the contractor must give the seller documentation of the bid for which an exemption is claimed.
All deliveries must be made before the 6-month exemption period expires.
Contractors must provide sellers with a completed Form ST3, Certificate of Exemption, when they have a qualifying pre-existing bid or contract affected by a change in the tax rate.
