August 5, 1997
Robert M. High Deputy Treasurer State and Local Government Finance Division Office of State Treasurer Raleigh, NC
Advisory Opinion; Sales Tax Refunds When Counties Purchase Personal Property or
Construct Buildings for Local School Administrative Units; G.S. § 105-164.14(c)
You are concerned with the distribution and expenditure of state bond funds for public school facilities and have asked under what circumstances, if any, counties may submit refund claims under G.S. § 105-164.14(c) for sales taxes paid upon purchases of personal property to be used by a local school administrative unit or paid upon materials used in the construction of school buildings for a school unit. You have indicated that your concerns arise chiefly in efforts to identify the most efficient and equitable means of meeting the costs of school facility construction using proceeds of the Public School Building Bond Act of 1996, 1995 Sess. Law, ch. 631 (1996).
The General Assembly in G.S. § 105-164.14(a)-(e) has directed the Department of Revenue to make sales and use tax refunds to a series of enumerated entites. The entities include interstate carriers, nonprofit hospitals, charitable and religious organizations, private not-for-profit educational institutions, state agencies, counties, cities, sanitary districts and 17 other enumerated local government entities. The refunds authorized are generally for sales and use taxes incurred directly in purchasing tangible personal property and indirectly in constructing, repairing and equipping buildings and other structures.
Absent from the long list of enumerated entities eligible for refunds are local boards of education. In an opinion dated August 25, 1961, the Attorney General concluded that "no refunds of sales and use taxes paid by county and city boards of education may be made" pursuant to G.S. § 105-164.14 or any other statute. We continue to adhere to that opinion in all circumstances where local school boards themselves are purchasing personal property or constructing, repairing or equipping school buildings pursuant to their statutory authority.
When our 1961 opinion was issued, local boards of education directly purchased personal property and directly contracted for the construction of their buildings with funds provided by the State and the counties. There was no mechanism at that time by which counties could undertake to perform these activities for local school boards. This remains the general rule today. See G.S. § 115C-521 (construction and repair of school buildings under direction and control of local school boards) and G.S. § 115C-522 (local schools boards to purchase supplies and materials). The General Assembly, however, has adopted two mechanisms by which counties in certain instances may undertake these activities for local school boards. The first is a series of local acts providing that "a county may acquire, by any lawful method, any interest in real or personal property for use by a local school administrative unit within the county" and that "a county may construct, equip, expand, improve, renovate or otherwise make available property for use by a local school administrative unit within the county." See 1995 Sess. Laws chs. 251, 651, 703, 750 and 1997 Sess. Laws chs. 24, 162, 190. The second is through inter-local cooperative agreements made under G.S. § 160A-460 et. seq.
The sole criterion a county must meet in order to receive a refund under G.S. § 105-164.14(c) on the purchase of tangible personal property not used in the construction or renovation of buildings is that the cost of the purchase was "paid by" the county. (county allowed refund on sales taxes "paid by it . . . on direct purchase of tangible personal property"). In our opinion a county can meet this criterion in purchasing personal property for a local school board only when the county has the lawful authority in the first instance to purchase tangible personal property directly for a school board. Only two sets of counties have the lawful authority to purchase tangible personal property directly for local school boards: (1) those covered by the local acts granting them the authority to acquire property for use by local school boards and (2) those that have entered into inter-local cooperative agreements with school boards specifically providing for the counties to exercise that power for the local school board. Additionally, a county may only make a refund claim when this lawful authority has been exercised in making the purchase for which the refund is sought. For example, in a county that has the power by local act to acquire personal property for the school board, the particular property for which a refund is sought must have been purchased and paid for directly by the county. Property acquired and paid for by the school board using county or other appropriations will not qualify for a sales tax refund.
Different criteria must be met by a county to obtain refunds on sales tax liability indirectly incurred on materials used in constructing, repairing or equipping buildings. The first criterion is that the materials are used in a building "owned or leased" by the county. This requirement is unambiguous. It is met when the particular building under construction or repair is owned or leased by the county rather than the school board. As a matter of municipal law, this can lawfully occur in those counties which by local act have the power to "construct, equip, expand, improve or renovate property for use by a local school administrative unit within the county" or in those counties where the board of commissioners and the board of education have entered into an inter-local cooperative agreement for the construction of a school building by the county.
The second criterion is that the building is "for use by" the county. This criterion is potentially subject to differing interpretations. On the one hand, all public school buildings are "for use by" the counties in fulfilling the duties imposed on them to provide funding to support the public schools. See, e.g., G.S. § 115C-522(c) (duty of counties and local school boards "to provide suitable supplies for the school buildings under their jurisdiction"); G.S. § 115C-524(b) (duty of counties and local school boards "to keep all school buildings in good repair"). In another sense, all public school buildings are "for use by" local school boards in fulfilling their educational duties. Indeed, the local acts conferring authority on counties to construct school buildings specifically state that they are to exercise that power "for use by a local administrative unit within the county." In our opinion, the better interpretation of the "for use by" the county criterion in
G.S. § 105-164.14(c) is that it encompasses both the construction or renovation of buildings by the county for its own direct and immediate use, e.g., a county office building, and the
construction or renovation of buildings by the county in fulfillment of a statutory duty, including the specific duty to support the public schools within the county. Notably, the phrase "for use by" does not include limiting words like "sole use," "exclusive use" or "direct use."
As in the case of refunds of sales taxes directly incurred by counties in purchasing personal property for local school boards, refunds of sales taxes indirectly incurred by counties through contracts they make for constructing, repairing and equipping school buildings are limited to those instances where the county is itself constructing, repairing or equipping the school building. When a local school board itself contracts for the construction, repair or equipping of its own building no refund is available even when county appropriations are used. This limitation is the necessary consequence of the General Assembly’s decision not to include local school boards among the enumerated entities eligible for refunds under G.S. § 105-164.14.
In sum, a county may submit refund claims for sales taxes under G.S. § 105-164.14(c) only in those limited instances where (1) it has the authority to purchase, and has actually purchased, particular personal property for a local school board and (2) it has the authority to make contracts for the construction, repair or equipping of a school building for a local board of education and has undertaken to do so. When local boards of education purchase their own personal property or construct, repair or equip their own buildings a refund is not available.
Our response to the question raised is narrow. It does not suggest that the Secretary of Revenue must review the refund claims of counties with any more particularity than for those filed by other entities.
Sincerely,
Edwin M. Speas, Jr. Senior Deputy Attorney General
George Boylan Special Deputy Attorney General
Douglas A. Johnston Special Deputy Attorney General