Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Transactions and Use Tax Annotations

815.0000 CONSTRUCTION CONTRACTORS—Regulation 1826

Annotation 815.0600

815.0600 Tax Rate Changes. Grandfather exemptions from tax increases exist for the following three different tax increases: (1) the ¼% tax increase (earthquake tax), (2) the ½% OCTA and LATC tax increases, and (3) the 1¼% state tax increase effective July 15, 1991. Each of these tax increases are covered by a specific and separate "grandfather clause" which exempts certain transactions entered into prior to the operative dates from the tax increase. Each of these laws stands alone, and each is slightly different as it relates to fixed price construction contracts. A clarification of the "grandfather clause" for each of three tax increases as they relate to fixed price construction contracts follows:

(1) ¼% Earthquake Tax

The "grandfather clause" covering the tax rate increase for the ¼% (earthquake tax) exempts from that increase fixtures, materials, and supplies obligated pursuant to a fixed price construction contract entered into prior to November 7, 1989.

(2) Transactions Taxes in General (½% OCTA, LATC, etc.)

The "grandfather clause" covering the tax rate increase for OCTA, LATC, as well as other district taxes exempts from that increase fixed price contracts. This includes fixtures obligated pursuant to a fixed price construction contract entered into prior to the effective date of the increase because construction contractors are retailers of fixtures. The "grandfather clause" relating to the tax increase does not provide an exemption from the increase for materials and supplies purchased pursuant to a fixed price construction contract entered into prior to the effective date of the increase, unless the contractor has entered into a fixed price contract directly with its supplier for these materials and supplies prior to the effective date of the tax increase.

(3) 1¼% State Tax Increase

The "grandfather clause" covering the tax rate increase for the 1¼% state tax increase exempts from that increase materials and fixtures obligated pursuant to a fixed price construction contract entered into prior to July 15, 1991. The "grandfather clause" relating to this tax increase does not provide an exemption from the increase for supplies purchased pursuant to a fixed price construction contract entered into prior to the effective date of the increase, unless the contractor has entered a fixed price contract directly with its supplier for these supplies prior to the effective date of the tax increase. 9/11/92; 5/20/96.