DRS: PS 96(6.1), Sales and Use Tax Exemption for Low and Moderate Income Housing Facilities

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 
 

This Policy Statement has been modified and superseded by PS 2002(6)

PS 96(6.1)

Sales and Use Tax Exemption for Low and
Moderate Income Housing Facilities

Conn. Gen. Stat. 12-412(29)


BACKGROUND: The Department issued PS 96(6) on July 5, 1996, to describe the exemption from sales and use taxes for purchases of tangible personal property for low and moderate income housing facilities, and procedures to be followed in connection therewith. This Policy Statement discusses 1997 legislative changes to the exemption from sales and use taxes for low and moderate income housing facilities, including exemptions for sales and purchases of services in connection with such housing facilities.


PURPOSE: This Policy Statement describes the scope of the exemption in Conn. Gen. Stat. 12-412(29) for purchases of tangible personal property acquired for incorporation into or used and consumed in the operation of low and moderate income housing facilities, and for purchases of services used in the development, construction, rehabilitation, renovation, repair or operation of such facilities; procedures to be followed in applying for and obtaining a determination from the Department that a facility qualifies for the exemption (a Facility Approval Letter); and use of CERT-126, Certificate for Exempt Purchases of Tangible Personal Property for Low and Moderate Income Housing Facilities when making purchases pursuant to the exemption statute. The Policy Statement also explains the relationship of Conn. Gen. Stat. 12-412(29) to Conn. Agencies Regs. 12-426-18(b) regarding construction contracts with nonprofit housing organizations, and to Conn. Agencies Regs. 12-426-15.

This Policy Statement also describes an exemption for sales and purchases of services in connection with low and moderate income housing facilities that are situated in Qualified Census Tracts or Difficult Development Areas as designated by the Secretary of the United States Department of Housing and Urban Development.


EFFECTIVE DATE: Effective for sales and purchases of tangible personal property for all open periods. Effective for sales and purchases of services occurring on or after October 1, 1997. (The exemption for services in connection with low and moderate income housing facilities that are situated in Qualified Census Tracts or Difficult Development Areas as designated by the Secretary of the United States Department of Housing and Urban Development is effective for sales and purchases of services occurring on or after January 1, 1997.)


STATUTORY AND REGULATORY AUTHORITY: Conn. Gen. Stat. 12-407(2)(i)(I), as amended by 1997 Conn. Pub. Acts 243, 11; 12-412(29), as amended by 1997 Conn. Pub. Acts 243, 21; 1997 Conn. Pub. Acts 4, 5 (June Spec. Sess.) and Conn. Agencies Regs. 12-426-18(b).


SCOPE OF THE EXEMPTION: Conn. Gen. Stat. 12-412(29) provides an exemption from sales and use taxes for the sale of and the storage, consumption or other use of tangible personal property when such tangible personal property is either (a) acquired for incorporation into housing facilities for low and moderate income families and persons, or (b) used and consumed in the operation of such housing facilities.

Effective for sales and purchases occurring on or after October 1, 1997, Conn. Gen. Stat. 12-412(29) also provides an exemption for any services described in 12-407(2) that are used and consumed in the development, construction, rehabilitation, renovation, repair or operation of housing facilities for low and moderate income families and persons.

To qualify for the exemptions for sales and purchases of tangible personal property and services, a low and moderate income housing facility must be (a) constructed under the sponsorship of a nonprofit housing organization, and (b) either owned or operated by a nonprofit housing organization.

The exemption is available to persons that make purchases of such tangible personal property or services in connection with such qualifying housing facilities, including sponsors, owners or operators of facilities, and contractors with sponsors, owners or operators, such as construction contractors, repairers, renovators, landscapers, maintenance and janitorial service providers. Purchasers need not be nonprofit housing organizations or other tax exempt organizations. (Nonprofit housing organizations that have been determined by the United States Treasury Department to be organizations described in Section 501(c)(3) of the Internal Revenue Code may also make direct purchases of tangible personal property and services exempt under Conn. Gen. Stat. 12-412(8); the exemption in 12-412(29) allows persons other than exempt entities to purchase tangible personal property and services exempt, when such items will be used exclusively in connection with housing projects that have been approved as provided herein.)


SPECIAL EXEMPTION FOR CERTAIN FACILITIES: 1997 Conn. Pub. Acts 4, 5 (June Spec. Sess.) provides a special exemption for services described in Conn. Gen. Stat. 12-407(2) that are used or consumed in the development, construction, rehabilitation, renovation or repair of low and moderate income housing facilities that are situated in Qualified Census Tracts or Difficult Development Areas as designated by the Secretary of the United States Department of Housing and Urban Development, provided that the development of such facilities is assisted by an allocation of Low Income Housing Tax Credits pursuant to Section 42 of the Internal Revenue Code.

For facilities that qualify under this provision only, sales and purchases of services are exempt on and after January 1, 1997.


TYPES OF PROPERTY AND SERVICES EXEMPTED: To be exempt from sales and use taxes, all tangible personal property and services must be used exclusively for the purposes of incorporation into or in the development, construction, rehabilitation, renovation, repair or operation of an approved housing facility for low and moderate income families and persons.

Purchases of exempt tangible personal property may include such items as building materials, landscaping materials, appliances, furniture and fixtures incorporated into or used exclusively in low and moderate income housing projects, and maintenance, janitorial, and office supplies used exclusively in the operation of low and moderate income housing projects.

Purchases of exempt services may include such services as renovation and repair, business or property management, janitorial and building maintenance, landscaping, security, exterminating, and repair and maintenance of tangible personal property, used exclusively in the development, construction, rehabilitation, renovation, repair or operation of low and moderate income housing facilities. In addition, Conn. Gen. Stat. 12-407(2)(I)(I) (services to real property) has been amended, effective October 1, 1997, to specifically exclude services rendered to housing facilities for low and moderate income families and persons, owned or operated by nonprofit housing organizations.


TERMS DEFINED IN THE EXEMPTION: A nonprofit housing organization is any organization which has as one of its purposes the development, construction, sponsorship or ownership of housing for low and moderate income families as stated in its charter (or certificate of incorporation), if it is incorporated, or its constitution or bylaws, if it is unincorporated, which has received an exemption from federal income taxes under Section 501(c) of the Internal Revenue Code and which provides in its corporate charter (or certificate of incorporation), if incorporated, or its constitution or bylaws, if unincorporated, that no officer, member or employee shall receive or at any time may receive any pecuniary profit from the operation of such organization, except reasonable compensation for services in effecting the purposes of the organization.

Housing facilities are facilities having as their primary purpose the provision of safe and adequate housing and related facilities for low and moderate income families and persons, notwithstanding that said housing provides other dwelling accommodations in addition to the primary purpose of providing dwelling accommodations for low and moderate income families.

Related facilities (as used in the definition of housing facilities) are facilities defined in Conn. Gen. Stat. 8-243(d), which defines related facilities as "commercial, office, health, welfare, administrative, recreational, community and service facilities incidental and pertinent to housing as determined by the [Connecticut Housing Finance Authority]."

Low and moderate income families are families as defined in Conn. Gen. Stat. 8-243(h), which defines low and moderate income families and persons as "families and persons who lack the amount of income necessary as determined by the [Connecticut Housing Finance Authority], to rent or purchase safe and adequate housing without special financial assistance not reasonably available."


APPLICATION FOR EXEMPTION: Persons wishing to apply for the exemption for sales and purchases of tangible personal property and services available under Conn. Gen. Stat. 12-412(29) must complete Form REG-19, Low and Moderate Income Housing Facilities, Application for a Facility Approval Letter. The applicant must be a nonprofit housing organization that sponsors the construction or renovation of the low and moderate income housing facility, or that owns or will operate such facility. Each application must be filled out completely and accompanied by all information necessary to the Department to determine the eligibility of the project for the exemption. At a minimum, this information will consist of:

  • a full description of the housing project, including its location and its dates of construction and commencement of operation;
  • the certificate of incorporation of the sponsoring organization, if it is incorporated, and the constitution and bylaws of the organization, if it is not, indicating that it qualifies as a nonprofit housing organization (i.e., the necessary language regarding its purpose and regarding officer, member or employee compensation);
  • a copy of the organization's current, valid determination letter issued by the United States Treasury Department indicating that the organization has received exemption from federal income tax under Section 501(c) of the Internal Revenue Code;
  • the organizing documents (certificate of incorporation or constitution and bylaws) of the owner and the operator of the facility, if different from the sponsoring organization, and proof that either the owner or the operator qualifies as a nonprofit housing organization;
  • documentation establishing that the construction project is being sponsored by the sponsoring organization; and
  • documentation establishing that the facility is being or will be operated by the person identified as the operator (including a copy of the management or operating contract, if available).

ISSUANCE OF FACILITY APPROVAL LETTER: Upon completion and submission of Form REG-19 and all necessary documentation by the applicant and approval of the application by the Department, the Department will issue to the applicant a signed, dated Facility Approval Letter on Department letterhead. The Facility Approval Letter will acknowledge that tangible personal property acquired for incorporation into or used and consumed in the operation of the low and moderate income housing facility named in the letter, and services described in Conn. Gen. Stat. 12-407(2) that are used and consumed in the development, construction, rehabilitation, renovation, repair or operation of such facility, are exempt from sales and use taxes as of the date of the letter. A copy of the Facility Approval Letter must be attached to CERT-126, or to the Contractor's Exempt Purchase Certificate (see below) by persons who wish to make exempt purchases for the facility.

NOTE: Conn. Stat. Stat. 12-412(29) requires that, effective October 1, 1997 nonprofit housing organizations obtain approval prior to making exempt sales or purchases of tangible personal property or services. Therefore, it is the responsibility of the nonprofit housing organization to apply for the Facility Approval Letter before the commencement of construction or renovation.


USE OF CONTRACTOR'S EXEMPT PURCHASE CERTIFICATE: Conn. Agencies Regs. 12-426-18(b) provides that, where a contractor enters into a construction contract with a nonprofit housing organization qualifying as such pursuant to Conn. Gen. Stat. 12-412(29), the contractor may purchase such materials and supplies as are to be physically incorporated in and become a permanent part of the project being performed under the contract without payment of sales and use taxes. The regulation prescribes the form of the Contractor's Exempt Purchase Certificate for this purpose. However, the use of a Contractor's Exempt Purchase Certificate is appropriate only when the contract is directly with a qualifying nonprofit housing organization for the repair, alteration, improvement, remodeling or construction of a low and moderate income housing facility. Contractors wishing to utilize the Contractor's Exempt Purchase Certificate must obtain from the sponsoring, owning or operating nonprofit housing organization a copy of the Department's Facility Approval Letter for the facility, and attach it to the Contractor's Exempt Purchase Certificate when making purchases.

USE OF CERT-126: Contractors that contract directly with persons other than nonprofit housing organizations for the repair, alteration, improvement, remodeling or construction of low and moderate income housing facilities (such as contractors that contract with for-profit owners or operators of such facilities), and for persons other than contractors who wish to make exempt purchases under Conn. Gen. Stat. 12-412(29) (such as owners or operators of such facilities), must use CERT-126, and a copy of the Department's Facility Approval Letter must be attached to the Certificate.

CERT-126 may also be used by contractors instead of the Contractor's Exempt Purchase Certificate.


EFFECT OF CONN. AGENCIES REGS. 12-426-15: Conn. Agencies Regs. 12-426-15(c) refers to sales to nonprofit housing organizations, and the general requirements of subsections (e) and (g) of the regulation also purport to apply to nonprofit housing organizations. However, because the provisions of Conn. Gen. Stat. 12-412(29) are more specific regarding the scope and requirements of the exemption for housing facilities for low and moderate income families and persons, Conn. Agencies Regs. 12-426-15 should not be followed with respect to 12-412(29), and will not be applied by the Department, and its provisions and requirements are of no effect in connection therewith.


EFFECT ON OTHER DOCUMENTS: PS 96(6) is superseded by this Policy Statement.


EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers.


FOR FURTHER INFORMATION: If you have questions about Connecticut taxes, please call the Department of Revenue Services during business hours, Monday through Friday:

  • 860-297-5962 (Hartford calling area or from out-of-state); or
  • 1-800-382-9463 (toll-free from within Connecticut)

Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.


FORMS AND PUBLICATIONS: You may obtain forms and publications at any hour, seven days a week:

  • Telephone: use the phone numbers listed above and select Option 3 from a touch-tone phone;
  • Internet: preview and download forms from the DRS web site: http://www.ct.gov/drs 

PS 96(6.1)
Sales and use taxes
Issued: 10/21/97
Replaces: PS 96(6), issued 7/5/96