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Second Appeal Brief
PA ID# 201-UR2OR-00; Memorial Hermann Healthcare System
PW ID# Project Worksheets 634-1 and 640-1; Sales Tax
FEMA-1379-DR-TX; Memorial Hermann Healthcare SystemCross-reference: Sales TaxSummary:
In June 2001, Tropical Storm Allison flooded most of the Houston area. All of the Memorial Hermann Healthcare Systems (Applicant) facilities 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. The contractor rented equipment and was responsible for the accompanying taxes thus incurring a direct charge to the project (OMB Circular A-122, Attachment A, B.1.). Project worksheets 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, version 1 was written for both PWs to fund the sales tax. On June 12, 2006, after a review of both 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 on PW 634-1 and 640-1. The Applicant stated that the contractor incurred the cost (sales tax) therefore it should be allowable. 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, with supporting documentation (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. The rental of equipment does not meet the definition of completely consumed for tax exempt purposes. Therefore, the rental is a taxable transaction and the sales tax paid is eligible for reimbursement.Issues:
Is the sales tax on the rental equipment eligible for reimbursement? Findings:
Yes. According to the Texas Tax Code, rental is a taxable transaction, and was a direct cost to the project. Under the terms of the contract with the contractor, the Applicant agreed to pay for all charges incurred to the project.Rationale:
OMB Circular A-122, Attachment A, B.1., Direct Costs,
and Attachment B, 47.a., Taxes