Ohio – Contractor Liable for Tax on Construction Materials

SALT Report 1160 – An Ohio Court of Appeals upheld a ruling assessing Ohio use tax against a pole building contractor.
The court determined that the taxpayer was a construction contractor and under Ohio law, contractors are the consumers of tangible personal property when used in the fulfillment of a construction contract. The court also found that the taxpayer had a mutually beneficial relationship with its supplier; by which the taxpayer would provide construction services to the customer and the supplier would provide the construction materials.
The taxpayer argued that they were not the consumers of the construction materials as they, “did not possess the materials, transport the materials, pay for the materials or give any consideration for the materials.”  The taxpayer contends that they were merely the “seller of construction services” and did not purchase any materials.
However, the only parties named in the contracts were the taxpayer and their customers and it stipulated that all payments were to be made to the taxpayer, not the supplier, and any excess materials after the project’s completion would remain the property of the taxpayer and not returned to the supplier. Consequently, the court concluded that the relationship between the taxpayer and its supplier created consideration for the use of the materials and was equivalent to the purchase of the materials, making the taxpayer the end user.
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