The Pennsylvania Department of Revenue has ruled that certain contractual arrangements commonly used in highway construction projects will not be respected by the Department for sales and use tax purposes (Ruling No. SUT-10-002). Under the ruling, a Bulletin 15 bridge beam supplier (that is not also a PennDOT approved contractor) that enters into a “supply and erect” subcontract with a prime construction contractor or with an erection subcontractor, and then subcontracts all of the erection work back to that contractor, will be treated as a mere “vendor” of bridge beams and not as a construction contractor. Under the ruling, the bridge beam supplier will be required to collect sales tax on the total sales price of the beams from the contractor performing the erection services (rather than to pay sales or use tax only on the cost of materials it uses to fabricate the beams). Similarly, the contractor performing the erection services will be required to pay sales or use tax on the full purchase price of the beams that it erects. This ruling has broad significance for the highway construction industry because the Department’s analysis applies not only to contracts for the erection of bridge beams, but also to contracts for the installation or erection of other components.

If the parties to such a contractual arrangement take the position that the material supplier is a construction contractor rather than a “vendor,” the Department may attempt to collect the tax due on the total sales price of the materials from either the material supplier or from the contractor actually performing the erection services. Thus, from a tax standpoint, it would be advisable for a material supplier to collect sales tax on the entire sales price of the materials from the contractor performing the erection services (or at least to seek contractual indemnification from the contractor in the event of a tax assessment against the supplier). Similarly, it would be prudent for contractors to require material suppliers to include sales tax in their quotes to avoid a tax exposure that was not factored into the bid price.