Ohio Sales/Use Tax: Exempt Purchases of Property Incorporated into Real Property

Generally, a contractor’s purchase of tangible personal property to be incorporated into real property is taxable. However, a contractor’s material purchases are not taxable when incorporated into:

• Real property under a contract with, or that is accepted for ownership by, the United States (including its agencies) or the state of Ohio or a political subdivision thereof;
• A horticulture or livestock structure for a person engaged in the business of horticulture or producing livestock;
• A house of public worship or religious education;
• A building used exclusively for charitable purposes by a charitable organization;
• A building under a contract with a 501(c)(3) tax-exempt organization, when the building is used exclusively for the organization’s exempt purpose;
• The original construction of a sport facility under R.C. 307.696;
• A convention center qualifying for the real property tax exemption under R.C. 5709.084; or
• Real property located outside Ohio, if the destination state would also exempt the contractor’s purchase of such materials.

These exemptions should be supported by the contractor’s receipt of an exemption certificate. The contractor should obtain a “Sales and Use Tax Construction Contract Exemption Certificate” (Form STEC CC) from the customer / property owner. Then, the contractor should provide “Sales and Use Tax Contractor’s Exemption” certificates (Form STEC CO) to its suppliers. O.A.C. § 5703-9-14(I). Even if the contract is exempt, the contractor is still liable for taxes on property not incorporated into real property improvements, such as tools, equipment and consumables.