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Second Appeal Letter
PA ID# 201-UR2OR-00; Memorial Hermann Healthcare System
PW ID# Project Worksheets 634-1 and 640-1; Sales Tax
May 22, 2008
Alternate State Coordinating Officer
Office of the Governor
Division of Emergency Management
5425 Polk Street, Suite 470
Houston, Texas 77023
Re: Second AppealMemorial Hermann Healthcare System, PA ID 201-UR2OR-00,Sales Tax
, FEMA-1379-DR-TX, Project Worksheets (PW) 634-1, 640-1
Dear Mr. Anders:
This is in response to your letter dated June 28, 2007, which transmitted the referenced second appeal on behalf of the Memorial Hermann Healthcare System (Applicant). The Applicant is appealing the Department of Homeland Securitys Federal Emergency Management Agencys (FEMA) de-obligation of $10,305 and $16,031.34 from PWs 634-1 and 640-1, respectively, for the reimbursement of sales tax.
In June 2001, Tropical Storm Allison flooded most of the Houston area. All of the Applicants facilities were affected and had up to 40 feet of water in the basement and sub-basement areas. The Applicant hired a contractor to perform emergency repairs as well as debris operations, using rented equipment to perform portions of the eligible work. The contractor was responsible for the accompanying tax on the rented equipment thus incurring a direct charge to the project. PWs 634 and 640 were written excluding the sales tax on the equipment rented by the contractor. Under the terms of the contract, the Applicant agreed to pay the contractor for all charges incurred to the project. After reviewing the documentation provided by the Applicant regarding the payment of sales tax on rented equipment, a version 1 was written for both PWs to fund the sales tax on rental equipment. On June 12, 2006, after a review of the PWs, FEMA de-obligated the sales tax amounts because the Applicant is a tax-exempt entity and not legally required to pay sales tax.
The Applicant submitted its first appeal on July 25, 2006, requesting that FEMA re-obligate the sales tax amounts. The Applicant stated that per the State of Texas, Tax is due on all machinery and equipment, equipment and machinery accessories, and repair and replacement parts used at the job site, as well as on office supplies. This includes the rental of equipment. The Applicant asserted that it was required to pay sales tax on the equipment rented by the contractor based on
the Texas Tax Code. The Regional Director denied the appeal on December 4, 2006, stating that as a tax-exempt entity, the Applicant is not legally required to pay sales tax and therefore, the tax is not eligible for FEMA reimbursement (OMB Circular A-122, Attachment B, 47.a.).
The Applicant submitted its second appeal on March 5, 2007, and provided supporting documentation identifying the State of Texas tax law which applied to the contractor (Texas Tax Code, Sec. 151.311 subparagraphs (b) and (d)). According to the tax code, only items completely consumed in performing a contract are exempt from sales tax. Since the rental of equipment does not meet the definition of completely consumed for tax exempt purposes, the rental is a taxable transaction. The terms of the agreement were that the Applicant would pay the contractor for all expenses incurred for the project; therefore, the sales tax paid by the contractor is a reimbursable expense.
Based on these facts, I am granting this appeal. By copy of this letter, I am asking the Regional Administrator to re-obligate $10,305 for PW 634-1 and $16,031.34 for PW 640-1.
Please inform the Applicant of my decision. My determination constitutes the final decision on this matter as set forth in 44 CFR §206.206.
Carlos J. Castillo
Disaster Assistance Directorate
cc: William Peterson
FEMA Region VI