Arkansas: Contractor was Purchasing Agent of Government

A Revenue Legal Counsel for the Arkansas Department of Finance and Administration recently addressed whether a taxpayer’s purchases made on behalf of a government-owned hospital for use in a construction project were exempt from gross receipts and use tax. The taxpayer, a contractor, entered into an agreement to purchase equipment and materials needed for the construction project on behalf of the hospital. Under Arkansas law, “gross receipts derived from the sale of materials used in the original construction or repair or further extension of state-owned tax-supported hospitals and sanitariums” are exempt from gross receipts and use taxes. To qualify for the exemption, the contractor making the purchases must have a principal-agent relationship with the hospital. After reviewing the agreement between the taxpayer and the hospital, the Revenue Legal Counsel determined that the hospital was a “state-owned tax-supported hospital” and that the taxpayer had a principal-agent relationship with the hospital.  Specifically, pursuant to the agreement, the hospital was liable to vendors, title to items purchased vested in the hospital, and the taxpayer’s spend was limited without pre-approval by the hospital. The agreement also required the contractor to identify itself as the agent of the hospital when making purchases. Revenue Legal Counsel concluded that because the contractor had stepped into the shoes of the hospital, the purchases were exempt from tax. For more information on Opinion No. 20200311, please contact Michael Andruchek at (214) 840-2467.