Construction Contractors: Sales Tax Questions and Answers?

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The following is provided as a guide to help ensure construction contractors adequately address common sales and use tax issues. Also check out earlier posts for additional information related to construction contractors.

Government or Tax-Exempt Entity Construction Jobs (applies to all states)

  1. Is Your Company paying sales tax to vendors on the purchase of materials in every state?
  2. If not, has Your Company confirmed that the applicable state allows Your Company to purchase materials tax-free and obtained the proper documentation?

General Items (applies to all states)

  1. Is Your Company taking advantage of state and local Brownfield Credits? LEED Credits?
  2. Is Your Company using a direct pay permit in any state?
  3. Is Your Company verifying correct sales tax rates are being utilized on long-term projects?
  4. Does Your Company pay sales tax on leases of equipment?
  5. Does Your Company pay sales tax on leases of equipment with an operator?
  6. Is Your Company self-assessing use tax on general administrative purchases?
  7. Is Your Company self-assessing use tax on out of state purchases of materials when not charged sales tax?
  8. Does Your Company have a process in place to determine if what they are installing is considered real property or tangible personal property by the state in which the project is conducted?

Arizona Projects

  1. Do subcontractors contract directly with Your Company (the general contractor) or the owner of the property?
  2. Does Your Company act as the general contractor or construction manager?
  3. Does Your Company back-out "design costs" from its AZ Transaction Privilege Tax calculation?
  4. Does Your Company issue prime contractor certificates to its subcontractors?
  5. Are architecture and engineering services provided by a separate entity? If yes, does the separate A&E entity contract directly with the owner of the property or with Your Company (the general contractor)?
  6. Does Your Company collect commercial lease income in Arizona? If so, does Your Company pay city transaction privilege tax on its lease income?
  7. Does Your Company pay sales tax on its equipment purchases?
  8. Does Your Company pay sales tax on its materials purchases?

California Projects

  1. Is Your Company paying sales tax to vendors on all material purchases?
  2. Is Your Company charging sales tax to its customers on all fixtures it installs?
  3. Is Your Company issuing resale certificates to subcontractors for materials or fixtures?

Florida Projects

  1. Are any projects in enterprise zones?
  2. If so, did Your Company apply for any sales tax refunds?

Texas Projects

  1. Does Your Company perform any commercial remodeling jobs in Texas?
  2. If so, does Your Company collect sales tax on the full contract price?
  3. If so, is Your Company taking a credit for the sales tax Your Company already paid to vendors on the purchase of the materials?
  4. Does Your Company perform new construction jobs in Texas?
  5. If so, is Your Company paying sales tax to vendors on purchases of materials?

Property Management (applies to all states)

  1. Does property management have a process in place to determine what is taxable and what isn't taxable from a sales tax standpoint?

Questions? Answers?

If you would like to discuss any of the above questions, or more importantly, your answers to the questions to determine what you should do next, please contact me at brian.strahle@bakertilly.com.

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I am building an new residential structure and am currently bidding out the job to several contractors.
My question is:
Is there sales anid use tax on the labor & materials used in the construction of a new home in Texas.
If so, at what rate and who is responsible for paying the tax? Does the contractor pay the tax on the labor & materials or does the contractor claim an exemption on for the tax and then tax the customer on the entire finished product?
Thanks,
Jeff Brown

Brian,

I work for a General Contractor the typically works on Guaranteed Maximum Price contracts for a variety of for-profit and non-profit Owners. We recently purchased some plumbing fixtures for a building under construction that is in California from a company in Georgia via a Purchase Order that notes that "The prices shown, unless otherwise provided, included all applicable taxes..." The supplier is not asking us to pay any sales tax in either Georgia or California. Do I need to add it to our job cost and pay the State separately or is the California tax responsibility that or the Georgia fixture provider? Thanks.

need an answer on construction accounting and tax