Capital Improvement (no sales tax) or no?

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JohnDS

Senior Member
Location
Suffolk, Long Island
Occupation
Electrician
Hey guys,

I was wondering if someone can help. A GC is contracting a job for a customer. The customer wants to finish his basement. I submitted proposal with sales tax, now GC wants to delete a room. I gave second proposal with sales tax, now GC says, "no tax, capital improvement". I'm kind of pissed to be honest. Anyone who is in business knows that sales tax is a good way to justify adding a couple on your estimate.

Anyway, does this fall under capital improvement(no sales tax)? Not sure if it matters by location, but this is in long island.

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hbiss

EC, Westchester, New York NEC: 2014
Location
Hawthorne, New York NEC: 2014
Occupation
EC
In NY you pay the tax on the material when you purchase it. New construction qualifies as a capital improvement. You do not charge customer any tax. You get customer to sign a ST-124 which is a Certificate of Capital Improvement. You retain that with the customer invoice and contract to show in case you get audited.

Anyone who is in business knows that sales tax is a good way to justify adding a couple on your estimate.

I hope you don't mean that you charge tax and keep the amount. :eek: That's a good way to wind up in a lot of big trouble!! As far as sales tax is concerned you are only the tax collector. Whatever you collect (even in error) MUST be remitted to the state.

-Hal
 

GoldDigger

Moderator
Staff member
Location
Placerville, CA, USA
Occupation
Retired PV System Designer
In other jurisdictions that charge sales tax on labor or services, what would you do about the labor for creating a capital improvement? Your labor adds value to the materials in the process of making the improvement.
I had not thought much about this before.
 

hbiss

EC, Westchester, New York NEC: 2014
Location
Hawthorne, New York NEC: 2014
Occupation
EC
Every state is different as far as how sales tax is assessed on construction. I only know New York and Connecticut. Rather than conjecturing, I suggest going to your state's Taxation and Finance (or whatever your state calls it) website and get the facts. I would also consult with an accountant to make sure you are doing everything right. Handling sales tax properly is a very serious matter and believe me, you don't want the State coming after you looking for penalties, interest and what they think you should have collected. Even if you are incorporated they will come after you personally and attach your property. It's very easy for them to find you out, usually it's through an audit of one of your customers. All they need to see is an invoice and they check you out too. Happened to me.

-Hal
 

Sierrasparky

Senior Member
Location
USA
Occupation
Electrician ,contractor
Do you work in a state that collects sales tax on real property improvements as there is less than a handful.
Most charge tax on items sold but not the labor.
If you are charging tax on the entire job and your state only requires tax on goods then no wonder the GC is upset. You could be in deep doo doo also with the state.

For example.
You install a tankless water heater. You charge 1500 for the WH though it cost you 1000.00 and you charged separate for labor. You need to charge tax on the 1500 you charged for the WH. Don't pay tax at the supply house.
or
Charge a lump sum to supply and install the same WH you only pay tax on the parts 1000.00
 

GoldDigger

Moderator
Staff member
Location
Placerville, CA, USA
Occupation
Retired PV System Designer
Slightly off topic but apparently LA county is going bonkers on business licenses for a business operated from the home.
If you do not file the right paperwork at the START of the year, they will charge you interest and penalties on estimated income even if you do not really owe anything.

Even worse than getting caught in the sales tax wringer IMO.
 

goldstar

Senior Member
Location
New Jersey
Occupation
Electrical Contractor
Here's the way I was told it works (at least here in NJ). If you're working directly for the end user (homeowner) and if your estimate/proposal is for a total installed price (on certain types of installations that would qualify) you can issue a capital improvement form to have them sign. You pay the sales tax at the supply house on any materials you purchase for the job. If you're working for the GC he is supposed to issue the capital improvement form to his customer. In that case the GC is your customer and you're a sub. He will issue a 1099 to you at the end of the year if he's paid you over $600.00.

If you itemize your invoices and break out labor and materials into separate prices you are supposed to charge sales tax on your labor
 

kwired

Electron manager
Location
NE Nebraska
Anyone who is in business knows that sales tax is a good way to justify adding a couple on your estimate.

As some have already mentioned, sales tax laws will vary depending on where you are. So first step is determining what portions of the total are subject to tax, may be just materials, may be total, some places and or in some conditions the tax is only paid on your purchases and not your sales.

But I don't see throwing tax on an estimate as a way of covering something you may have missed. Tax is tax, and if you invoice the tax chances are you owe the tax so it gains you nothing, but raises the net the customer has paid you. Here we get a small credit when filing sales taxes - a little break mostly to help cover the cost of processing the return, but it is only like one percent of tax due (not the taxable amount) - and still has a maximum limit so you are not going to see any significant profit from this credit.
 

JohnDS

Senior Member
Location
Suffolk, Long Island
Occupation
Electrician
Since i am working for the GC on this project, am I still needing the capital improvement form signed by customer and givin back to me?

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GoldDigger

Moderator
Staff member
Location
Placerville, CA, USA
Occupation
Retired PV System Designer
Anyone?

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I could say that you just need a copy of the certificate that the GC gets.
Or I could say that you need your own, signed by the customer.
And I do not know if either of those answers is right.

Anyone else? :)
 

goldstar

Senior Member
Location
New Jersey
Occupation
Electrical Contractor
Since i am working for the GC on this project, am I still needing the capital improvement form signed by customer and givin back to me?

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No. The HO is the GC's customer and he is the one that issues the tax form to them. He should be issuing a 1099 to you for the work you charged him for. Make sure you have a federal tax ID and fill out this for for the GC's accountant : http://www.irs.gov/pub/irs-pdf/fw9.pdf . Don't give him your SSN.
 

JES2727

Senior Member
Location
NJ
Since i am working for the GC on this project, am I still needing the capital improvement form signed by customer and givin back to me?

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Anytime you work for a GC you do not collect sales tax. The GC collects the tax from the customer. Likewise, if you hire a subcontractor they are not to collect sales tax from you. Capital improvement or not, makes no difference.
 

JohnDS

Senior Member
Location
Suffolk, Long Island
Occupation
Electrician
Anytime you work for a GC you do not collect sales tax. The GC collects the tax from the customer. Likewise, if you hire a subcontractor they are not to collect sales tax from you. Capital improvement or not, makes no difference.
Ok,

1) Do i still need a capital improvement form?

1a) If so, do I need it signed from GC or the customer?

Also the GC is really a painting company acting as a GC but I assume it's the same.

Thank you.

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kwired

Electron manager
Location
NE Nebraska
Since i am working for the GC on this project, am I still needing the capital improvement form signed by customer and givin back to me?

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Again it depends on your local sales tax laws, this answer will vary from place to place.

No. The HO is the GC's customer and he is the one that issues the tax form to them. He should be issuing a 1099 to you for the work you charged him for. Make sure you have a federal tax ID and fill out this for for the GC's accountant : http://www.irs.gov/pub/irs-pdf/fw9.pdf . Don't give him your SSN.
The topic of discussion here is sales tax not federal income tax.
 

goldstar

Senior Member
Location
New Jersey
Occupation
Electrical Contractor
The topic of discussion here is sales tax not federal income tax.
Granted. I was trying to make the point that the only tax forms between you and the GC are for Fed tax. Unless you're the GC on the job you are not required to provide any STATE capital improvement forms. I think we've all said the same things over and over here.
 

GoldDigger

Moderator
Staff member
Location
Placerville, CA, USA
Occupation
Retired PV System Designer
Granted. I was trying to make the point that the only tax forms between you and the GC are for Fed tax. Unless you're the GC on the job you are not required to provide any STATE capital improvement forms. I think we've all said the same things over and over here.
But what are you supposed to do when the state audits the sales tax you have submitted over the year compared to your income?
Tell them to get the form from the GC?
 

kwired

Electron manager
Location
NE Nebraska
Here if you do not charge sales tax to an entity for something you normally would charge sales tax for you need to have a form completed in your files (you do not send it in to the tax AHJ, it is just in your files for in case of audit) and signed by the entity that is claiming they are exempt from said taxes. Possible reasons for exemption are all listed on the form and you check the box next to the one that applies. Government entities often are automatically exempt, you still get them to fill out the form and check the government entity box, most others need to have a tax id number if they are truly exempt and must put it in space provided on the form.
 

JES2727

Senior Member
Location
NJ
Ok,

1) Do i still need a capital improvement form?
No. The GC is responsible for collecting the sales tax. Therefore he is responsible for obtaining the exemption form.
Subcontractors never collect sales tax. If the sub charges the GC for the tax and the GC charges the customer for the tax, the customer is paying sales tax twice.



Also the GC is really a painting company acting as a GC but I assume it's the same.
Regardless, you're working as a subcontractor. If you're getting paid by the painter and he, in turn, is getting paid by the customer, you're a sub.
 
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