Could a government contractor retroactively amend an older contract so its property purchases became purchases for resale to the city?

Plain-English summary

A company operated and managed a city's wastewater treatment plant under a five-year contract signed in 2012. The original contract did not say that purchased property was sold or transferred to the city, and the company asked whether adding that language later would apply back to the contract's beginning.

IDOR could not give a contract-specific legal answer without reviewing the written agreements. It nevertheless said a government contractor ordinarily bought items for its own use when fulfilling a government contract.

The purchases could instead be structured for resale to the governmental unit when the contract explicitly required the contractor to provide and sell tangible property to that unit. The contract had to document the transfer, but did not need an item-by-item list; a clause stating that title to all purchased property passed to the government could suffice, either immediately or after contract completion.

For audit, the Department would examine the contract in effect when the transaction occurred. The GIL said the original contract appeared to remain controlling before the modification date and the amended language would not apply retroactively.

What this means for you

Government ownership or project purpose did not automatically turn a contractor's purchases into resale transactions. The operative contract needed express sale and title-transfer language before the relevant purchases occurred.

Common questions

Did the contract need to list every item? No.

Could a general title-transfer clause be sufficient? Yes.

Did a later amendment rewrite earlier transactions? The GIL said it appeared not to apply retroactively.

Citations and references

• 86 Ill. Adm. Code 130.2076(a)(2).
• United States v. New Mexico, 455 U.S. 720, 102 S. Ct. 1373 (1982).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0025-gil.pdf

Original ruling text

ST 15-0025-GIL 04/30/2015 GOVERNMENTAL BODIES
Generally, a government contractor who purchases items to fulfill his obligations under a
contract with a governmental unit purchases those items for use. See, U.S. v. New Mexico,
455 U.S. 720, 102 S. Ct. 1373 (1982). However, if the contract with the governmental unit
explicitly requires the contractor to sell those items to the governmental unit, the purchase of
those items by the contractor can be structured as purchases for the purpose of resale to the
governmental unit. See 86 Ill. Adm. Code 130.2076. (This is a GIL.)

April 30, 2015

Dear XXXX:
This letter is in response to your letter dated February 18, 2015, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
COMPANY (COMPANY) has a contract with the CITY to provide professional services
for the Operations, Maintenance and Management of the CITY Regional Wastewater
Treatment Plant, and services associated with the implementation, management and
enforcement of a citywide Industrial Pre-Treatment program.
I have reviewed Illinois Government Contracting Tax regulations and all related Private
Letter Rulings issued by the Illinois. Illinois issued Private Letter ruling ST-13-0001-PLR
(7/31/2013) that clearly states that a contract between a governmental unit and a
contractor must meet the following:
1) There is a contract between the purchaser and the governmental body that
requires the purchaser to provide tangible personal property to the governmental
body.
2) The contract is specific in documenting a sale of tangible personal property from
the purchaser to the governmental body. The contract must specify that the
tangible personal property is transferred to the governmental body. However, the
contract does not have to be item specific. For example, a statement that the
title to all the tangible personal property that is purchased shall pass to the

governmental body is sufficient. The transfer may be immediate or subsequent
to the completion of the contract.
The original 5-yr contract signed between COMPANY and CITY in December 2012,
prior to the issuance of ST 13-0001-PLR, did not include the language outlined above.
If we amend our contract to include such language, would it be applied retro-active to
the beginning of our contract signed in 2012?
COMPANY (COMPANY) is respectfully requesting a Private Letter Ruling to address
our questions regarding the applicability of amendments to the a governmental
contracts.
DEPARTMENT’S RESPONSE:
We are unable to provide you with a specific answer without reviewing the written contracts
between the parties. We have set out some general information that may be of assistance to you in
determining your sales tax liabilities.
As you have noted in your request, Section 130.2076 of the Retailers’ Occupation Tax (86 Ill.
Adm. Code 130.2076) regulations sets forth specific rules for sales to purchasers performing
contracts with governmental bodies. Section 130.2076 includes language regarding contractors that
purchase items to fulfill obligations under a contract with a governmental unit. Generally, a
government contractor who purchases items to fulfill his obligations under a contract with a
governmental unit purchases those items for use. See, U.S. v. New Mexico, 455 U.S. 720, 102 S.Ct.
1373 (1982). However, if the contract with the governmental unit explicitly requires the contractor to
sell those items to the governmental unit, the purchase of those items by the contractor can be
structured as purchases for the purpose of resale to the governmental unit. In order for this to
happen, there must be a contract between the purchaser and the governmental body that requires
the purchaser to provide tangible personal property to the governmental body, and the contract must
be specific in documenting a sale of tangible personal property from the purchaser to the
governmental body. Subsection 130.2076(a)(2) states that “the contract does not have to be item
specific.” For example, a statement that title to all of the tangible personal property that is purchased
shall pass to the governmental body is sufficient. The transfer may be immediate or subsequent to
the completion of the contract.
Your letter mentions that the original contract which was signed in 2012 did not include the
above language. Upon audit, an auditor will look at the contract that was in effect at the time of the
transaction in question. Though we cannot provide a legal response to your question, it appears that
the original contract would remain in effect prior to the date of modification. The modified contract
would not apply retroactively.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Cara Bishop
Associate Counsel
CB:kd