Opinion No. (1996)

Dear Representative Vaughn,

¶ 0 This office has received your requests for an official Attorney General Opinion addressing, in effect, the following questions:

1. Is the exemption from sales tax on sales to or by churchesfound at 68 O.S.Supp. 1995, § 1356(7) applicable to purchasesby contractors or subcontractors made in the course of thecontractor's or subcontractor's performance of a contract with achurch? 2. May a church appoint its contractor or subcontractor as anagent to make purchases exempt from sales tax under the exemptionfor sales to or by churches found at 68 O.S.Supp. 1995, §1356(7)?

¶ 1 Your questions may be answered by reference to the provisions of the Oklahoma Sales Tax Code, 68 O.S. 1991 andSupp. 1995, § 1350 — § 1374 (the "Code"). Section 1351 of the Code is a statement of legislative intent and provides in pertinent part:

It is further hereby declared that the intent of the Legislature is that the excise tax levy re-enacted herein and all other provisions of this Code shall be construed as imposing a tax upon the sale of tangible personal property and services, not otherwise exempted, to the consumer.

68 O.S. 1991, § 1351[68-1351].

¶ 2 Section 1354(1) of the Code levies a sales tax "upon all sales, not otherwise exempted in the Oklahoma Sales Tax Code." Under the provisions of 68 O.S.Supp. 1995, § 1356[68-1356](7), sales "to or by churches" are exempt from the tax levied by the Code. This is an exception to the general rule that all sales are taxable. Your first question essentially asks whether a contractor for a church may make tax-free purchases using the church exemption.

¶ 3 Contractors are specifically included within the definition of consumer for purposes of interpretation of the Oklahoma Sales Tax Code. The Code at Section 1352(C) provides:

"Consumer" or "user" means a person to whom a taxable sale of tangible personal property is made or to whom a taxable service is furnished. "Consumer" or "user" includes all contractors to whom a taxable sale of materials, supplies, equipment, or other tangible personal property is made or to whom a taxable service is furnished to be used or consumed in the performance of any contract.

68 O.S.Supp. 1995, § 1352[68-1352](C).

¶ 4 It is the declared legislative intent that, unless a specific exemption is applicable, all sales to consumers are taxable. 68 O.S. 1991, § 1351[68-1351]. Further, it is a rule of statutory construction that tax "exemption statutes are to be strictly construed against exemptions." Bert Smith RoadMachinery Co. v. Oklahoma Tax Commission, 563 P.2d 641, 643 (Okla. 1977). In order to determine if sales to contractors for churches are exempt from sales tax there must be a specific statutory exemption applicable to such sales. Oklahoma law contains no such exemption and, therefore, a contractor or subcontractor hired by a church, may not make purchases which are exempt from sales tax. The exemption found at 68 O.S.Supp. 1995,§ 1356[68-1356](7) is available only to churches and not to contractors or subcontractors performing a contract with a church.

¶ 5 Your second question asks whether a contractor or subcontractor may be appointed an agent of a church and make purchases exempt from sales tax. Whether or not a principal/agent relationship exists is a question of fact and requires a factual analysis for each relationship. However, in the context of the imposition of sales tax, the existence of an agency relationship is irrelevant. All sales, including those to contractors, are taxable unless specifically exempted. The Code provides no exemption for contractors acting as an agent for a church. Therefore, sales to contractors for churches are taxable regardless of the existence of a principal/agent relationship.

¶ 6 It is, therefore, the official Opinion of the AttorneyGeneral that: 1. The exemption from sales tax on sales to or by churchesfound at 68 O.S.Supp. 1995, § 1356(7) is not applicable topurchases by contractors or subcontractors made in the course ofthe contractor's or subcontractor's performance of a contractwith a church. 2. A church may not appoint its contractor or subcontractor asan agent to make purchases exempt from sales tax under theexemption for sales to or by churches found at 68 O.S.Supp.1995, § 1356[68-1356](7).

W.A. DREW EDMONDSON ATTORNEY GENERAL OF OKLAHOMA

DOUGLAS F. PRICE ASSISTANT ATTORNEY GENERAL