Direct payment permits; contractors

Sec. 17. (a) The contractor who has applied for and received permission to pay on a direct payment permit basis may issue direct payment

permits to his suppliers, but when acting as a contractor should remember that he must obtain an exemption certificate–not a direct payment

permit–from any exempt customer for whom he is making an improvement to real estate as a result of a flat bid or lump sum

contract.

(b) A builder under a time and material agreement is selling the material to his customer and should normally collect sales tax. The builder

may accept a direct payment permit from his customer and is then relieved from the liability to collect sales tax.

(c) A flat bid contractor, on the other hand, does not sell tangible personal property or collect sales tax as a result of his contract, and the

receipt of a direct payment permit is of no value to him. If the organization, for which the contractor is constructing the improvement, is entitled

to exemption, they must give the contractor an exemption certificate (ST-105) certifying that fact. A direct payment permit from the organization

would not certify that the organization was entitled to exemption–only that they would pay tax for which they were liable.