Ten Sales Tax Items Construction Companies Should Consider

Ten Sales Tax Items Construction Companies Should Consider

Confused about sales and use tax laws? You are not alone! There are nearly 10,000 different taxing jurisdictions in the United States alone, and often each with their own set of rules. Many, if not all, state budgets rely heavily on the sales tax they collect and they know they aren’t receiving all the tax dollars they are owed. Learning to play—or pay— by the rules in your company can help keep you out of the audit cross-hairs and positively impact your bottom line.

Although the wording may differ from state to state, a construction contractor is generally one who converts tangible personal property into real property, like buildings or land. There are a wide variety of topics for construction companies to consider: purchasing or selling materials, purchasing or selling services, the type of work: residential, new construction, remodel, mixed jobs, the list goes on.

Below are ten questions construction contractors and their bookkeepers should consider:

1. Are you paying sales tax to vendors on the purchase of materials in every state?
2. If not, have you confirmed that the applicable state allows your company to purchase materials tax-free and do you have the proper documentation?
3. Is your contract or billing statement lump sum or itemized. Does is make a difference?
4. Do you file a quarterly use tax return?
5. Are you regularly reviewing compliance rules in the states you operate in?
6. Do you pay sales tax on leases of equipment?
7. Do you pay sales tax on leases of equipment with an operator?
8. Are you self-assessing use tax on general administrative purchases? Does that include the proper local option rate?  Does your work zone have a local option?
9. Are you self-assessing use tax on out of state purchases of materials when not charged sales tax?
10. Do you have a process in place to determine if what you are installing is considered real property or tangible personal property by the state in which the project is conducted?

With all these questions on the table, many business owners have an understandable fear that they are not properly following all the rules and are not in compliance. Sometimes, a company may even be paying more sales tax than needed, meaning there is money left on the table.