Earlier this year AGC worked for and secured changes to the two-year-old reseller permit law. Passage of that legislation is now bearing its practical fruits as the Department of Revenue announced it is sending renewed reseller permits to nearly 18000 construction businesses this month.
In 2009 lawmakers replaced self-issued resale certificates with department-issued reseller permits. Contractors who do not provide a copy of a reseller permit or other acceptable exemption certificate to wholesalers must pay retail sales tax when buying goods and services for resale.
The law originally required contractors to reapply for the permits each year but the bill (SHB 2758) that passed in the last legislative session allows the department to automatically renew permits to construction businesses that qualified based on tax reporting history. (Some construction business will be notified that their reseller permits will not be automatically renewed.)
Allowing the automatic renewals was one positive element of SHB 2758 and there were others.
Another important change allows contractors to use a two-year (rather than one-year) “look back” in determining whether their market mix of construction activities meets the 25 percent threshold to qualify for the permit. This is important because if a contractor’s total dollar amount of business activity drops below 25 percent of taxable construction issuance of a seller’s permit is jeopardized. Use of a 12 month “look back” in calculating market-sector activity in determining the 25 percent taxable activity threshold could be problematic for contractors and the Department when economic conditions cause many contractors to perform a greater proportion of their business as projects for government agencies which aren’t subject to sales tax. This makes achieving the 25 percent threshold more difficult than normal.
As the economy improves these contractors’ mix of business will fluctuate gravitating more to a normal mix of private sector and government projects. Calculating future permit eligibility based on 12 months of non-qualifying construction activity will make achieving the 25 percent threshold more difficult resulting in more requests for special permit handling and appeals of permit denials or requiring contractors to pay sales tax up front and then try to get a refund from the state. The two-year “look back” mitigates this.
Finally the legislation allows contractors to apply for a Resellers Permit every two years rather than annually (with the possibility of automatic renewal). Unfortunately the bill puts off implementation of the two-year permit until July 13 2013. AGC is working with DOR to move that date up.