Oklahoma Sales Tax Exemption for Church Construction

In typical legislative style, the Oklahoma Legislature passed, and then inadvertently repealed, and then promised to pass again, a bill exempting church construction contracts from OK sales tax. Normally, churches are exempt from OK sales tax. However, if a church undertakes a construction project and hires a contractor who purchases the materials, the contractor has to pay sales tax on the materials. The contractor would naturally pass through this tax in his billings under the contract. Oftentimes, a church will arrange with its contractor for the church to pay for materials directly, thereby avoiding the sales tax burden. This can be a cumbersome process. Enter the OK Legislature riding its white horse...

The bill, SB 1084 - the Omnibus Tax Bill, provided a sales tax exemption for "any person with whom a church has duly entered into a construction contract..." What a great idea! However, in its Special Session the Legislature repealed the entire tax bill and forgot to put this exemption back into the final bill. To add to the confusion, the repeal is not effective until June 30, 2007, whereas the original exemption is effective August 25, 2006. What this means is material purchases by the contractor between August 26, 2006 and June 30, 2007 will be exempt from OK sales tax. If the Legislature fixes its mistake, the exemption should continue. If the error is not rectified, the exemption will expire on June 30, 2007.

Recommendation: The prudent course for church construction contracts may be for the church to continue to pay for the building materials directly until the OK Legislature gets its act together. Updated information will be forthcoming as soon as the Legislature moves. For other state filing requirements...We have answers...contact us!