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Alabama: The Return of Exemption Certificates


 Alabama HB 419 would allow contractors to use exemption certificates when purchasing building supplies for government projects.

Department of Revenue to grant certificates of exemption to contractors and subcontractors working on projects for "government entities that are tax exempt." HB 419 passed the House by a large margin and now awaits discussion in the Senate.

If signed into law, HB 410 would not so much create new policy as bring old policy back. In 2000, the Alabama legislature enacted Act No. 2000-684, "which exempts the sale to, or the storage, use, or consumption by, contractors and subcontractors of any tangible personal property to be incorporated into realty pursuant to contracts with:

  • The United States Government
  • The State of Alabama
  • A County of the State of Alabama
  • An Incorporated Municipality of the State of Alabama
  • A public corporation created pursuant to the Alabama Constitution or a general or local law; or
  • An educational institution of the United States government, the State of Alabama, or a county or incorporated municipality of the State of Alabama."

That act, and the exemption, was repealed in 2004 with the passage of Act 2004-638. Current law now requires the government entity "to actually purchase, store, and pay for construction materials to be used in a construction project of the governmental entity in order for the governmental entity to recognize the cost savings on the tax exempt purchases."  Sounds like a logistical nightmare.

The proposed legislation would "provide for the Department of Revenue to grant certificates of exemption from sales and use taxes to contractors and subcontractors … for the purchase of building materials and construction materials to be used in the construction of a building or other projects…."

The exemption would not apply to materials used "in the construction of… any highway, road, or bridge project…."

How does your business manage exemption certificates?

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photo credit: Ben McLeod via photopin cc


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.