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What needs to be done for a Construction Materials Bid Exception in AvaTax?

Overview

Your customer has sent you a South Dakota Construction Materials Bid Exception certificate. You would like to make sure you are taxing this customer appropriately in AvaTax

Environment

Avalara AvaTax

Resolution

  • Please review the SD Department of Revenue information on this exception first:

    • http://dor.sd.gov/Taxes/Business_Tax...Tax_Forms.aspx

    • In June 2016 the South Dakota State tax rate increased from 4% to 4.5%.  However, materials incorporated into construction projects that were bid or entered into before June 1, 2016, are subject to the 4% state plus applicable city sales or use tax. The prime contractor’s bid date determines the sales or use tax rate applicable to materials supplied by subcontractors

  • To set this up in AvaTax, first make sure your contract with this customer began prior to June 1 2016.

    • If it did, you will have to create a custom tax rule to force the 4% SD State tax rate

  • Log into the Admin Console (as an Admin user) and go to Organization > Tax Rules > New

    • In Step 1, select the following:

    • sdstep1.PNG

    • In Step 2, enter the following:

    • sdstep2.PNG

      • Now when you process a transaction that meets the requirements of the exemption, you will enter the Entity Use Code of "CMBE", or whichever custom Entity Use Code you create, and the State rate will be reduced to 4%

  • If you cannot use Entity Use Codes on your transactions, you will need to link the rule to a Tax Code or not use AvaTax to calculate this transaction

    • You will not be able to use a default Entity Use Code and enter an Exemption Certificate because this will affect the tax rate for every transaction this customer does in South Dakota. You will not be able to control which transactions apply the reduced rate
      • Step 1 of the rule will be the same as the example above

      • Step 2 will look as follows:

        • The Tax Code you enter in Step 2 of the rule will need to be used on every line item that needs the reduced SD State rate of 4%