Louisiana Department Of Revenue Clarifies Contractor Exemption For Public Projects

Contractors and subcontractors working on public construction projects in Louisiana can now benefit from an expanded sales and use tax exemption under Revenue Information Bulletin 26-010, recently issued by the Louisiana Department of Revenue. The bulletin provides guidance on the scope of the sales and use tax exemption following the enactment of Act 384 of the 2025 Regular Session, which amended La. R.S. 47:305.7(A) to extend the governmental exemption to certain purchases made by contractors and subcontractors. Effective July 1, 2025, the sales and use tax exemption applies to qualifying purchases made in connection with construction contracts for the state and its political subdivisions.

The exemption is narrowly tailored and applies only to tangible personal property purchased for exclusive and direct use in performing a public construction contract, where the property is ultimately incorporated into and owned by the public entity as part of the completed immovable. Qualifying items include:

• Typical construction materials such as concrete, sheet rock, HVAC systems, and other components that become part of the finished public project.
• Equipment rentals, provided the equipment is used exclusively on the public project and would have qualified if acquired directly by the public entity.

The bulletin draws a clear distinction between qualifying and non-qualifying uses. Indirect or support-related items do not qualify, even if used on the job site. For example, rentals of office trailers, transportation for workers, and portable facilities do not qualify for the tax exemption because they are not directly used in construction. Similarly, tools and equipment that remain the property of the contractor at the end of the project, such as ladders, generators, and hand tools, do not qualify, even if used extensively in performing the contract.

The Department also clarifies that consumables and operational inputs are not eligible for the exemption. Items such as fuel, lubricants, cleaning supplies, and safety equipment are treated as supporting the contractor's operations rather than being incorporated into the public work. In addition, services and labor charges are not exempt because the statute applies only to purchases of tangible personal property.

Finally, the bulletin notes important limitations on the exemption in more complex arrangements. The exemption generally does not apply to property owned by a public entity but leased to a private party under payment-in-lieu-of-taxes (PILOT) or similar agreements, unless specific approvals are obtained from the Department of Revenue and the Louisiana Department of Economic Development.

Revenue Information Bulletin 26-010 provides clarity for contractors and subcontractors seeking to apply the expanded exemption under Act 384. However, because eligibility turns on strict ownership and use requirements, taxpayers should carefully evaluate procurement practices and certification documentation to ensure compliance and to substantiate exemption claims in the event of audit. For more information, contact Liskow attorneys Bob Angelico, Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow's Tax Practice page.

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