AB 340

This bill expands the sales and use tax exemption for products sold in

connection with real property construction activities as part of a lump sum contract

to all construction contracts.

Under current law, there is a sales and use tax exemption for property, items,

and services (products) sold by a contractor as part of a lump sum contract for real

property construction activities if the total sales price attributable to the taxable

products is less than 10 percent of the total contract price. Under the bill, the

exemption is expanded to apply to all construction contracts involving real property

construction activities if the total sales price of the taxable products is less than 10

percent of the total contract price. If the exemption applies, the contractor is the

consumer of, and pays the sales tax on, the products.

The bill also provides that, if a prime contract qualifies for the exemption, the

exemption applies to all subcontracts entered into with respect to the real property

construction activities. If the exemption applies to a subcontract, the subcontractor

is the consumer of, and pays the sales tax on, the products.

Under current law, if a construction contract is between a contractor and a

tax-exempt entity, the contractor may purchase, without tax for resale to the

tax-exempt entity, any products that will be sold by the contractor to the tax-exempt

entity as part of a construction contract. The bill extends that sales and use tax

exemption to products purchased by a subcontractor for eventual resale to the

tax-exempt entity.

Because this bill relates to an exemption from state or local taxes, it may be

referred to the Joint Survey Committee on Tax Exemptions for a report to be printed

as an appendix to the bill.