Contractor tax question

[hbiss]

This doesn't seem correct at all. Here in NJ, as a contractor we pay no sales tax on items that will be resold, such as pipe, elbows, fire alarm equipment, etc. You get a reseller's certificate and a Certificate of Authority and all is good.

Apparently different from neighboring NY. We pay sales tax on material for new construction (capital improvement) which gets added to the cost of the materials. The owner or customer only sees the bottom line, no tax is broken out.

When the material is used for a repair, as long as we have a resellers certificate we don't pay any tax on it to the supply house but we charge the customer tax on both the material and labor. We are just like a store in this case- a reseller.

Only problem is the supply house isn't going to want to go back and forth charging tax one time and not the next. We also buy items for stock, so some things may get used in new construction and the same item for repairs. So most of us just pay the tax on everything. We can claim the tax we paid on any resale items as a credit on our return (big PITA paperwork) or, and I know it isn't right, charge the customer for the material plus tax that we paid, mark up that amount, add the labor and tax it all again. Sorry.

You can weigh that against not paying or collecting tax on something and getting caught.

-Hal

 

[gadfly56]

Apparently different from neighboring NY. We pay sales tax on material for new construction (capital improvement) which gets added to the cost of the materials. The owner or customer only sees the bottom line, no tax is broken out.

When the material is used for a repair, as long as we have a resellers certificate we don't pay any tax on it to the supply house but we charge the customer tax on both the material and labor. We are just like a store in this case- a reseller.

Only problem is the supply house isn't going to want to go back and forth charging tax one time and not the next. We also buy items for stock, so some things may get used in new construction and the same item for repairs. So most of us just pay the tax on everything. We can claim the tax we paid on any resale items as a credit on our return (big PITA paperwork) or, and I know it isn't right, charge the customer for the material plus tax that we paid, mark up that amount, add the labor and tax it all again. Sorry.

You can weigh that against not paying or collecting tax on something and getting caught.

-Hal

NJ does capital improvement certificates as well, but we hardly ever go through the hoops for sprinkler or special suppression. Fire alarms are specifically excluded from consideration by NJ!

 

[kwired]

We have a customer who buys equipment from us that is sometimes used in their lab (taxable) and other times the equipment is used in production (non-taxable). So we have to collect sales tax if it is lab equipment but not if it is production equipment, although they may be the same item.

Chances are you have them set up as either separate AR accounts or at least one of those situations is a sub account of the other yet has it's own attributes like a different sales tax rate.

 

[petersonra]

Chances are you have them set up as either separate AR accounts or at least one of those situations is a sub account of the other yet has it's own attributes like a different sales tax rate.

No idea. I do know that the purchase orders come in with the sales tax listed as a separate line item on the purchase order.

 

[electrofelon]

Apparently different from neighboring NY. We pay sales tax on material for new construction (capital improvement) which gets added to the cost of the materials. The owner or customer only sees the bottom line, no tax is broken out.

When the material is used for a repair, as long as we have a resellers certificate we don't pay any tax on it to the supply house but we charge the customer tax on both the material and labor. We are just like a store in this case- a reseller.

Only problem is the supply house isn't going to want to go back and forth charging tax one time and not the next. We also buy items for stock, so some things may get used in new construction and the same item for repairs. So most of us just pay the tax on everything. We can claim the tax we paid on any resale items as a credit on our return (big PITA paperwork) or, and I know it isn't right, charge the customer for the material plus tax that we paid, mark up that amount, add the labor and tax it all again. Sorry.

You can weigh that against not paying or collecting tax on something and getting caught.

-Hal

In my area in central NY, pretty much everyone calls everything a capital improvement. I have never done a "repair"and never collected and submitted sales tax in 20 years in the trade......

 

[hbiss]

I have never done a "repair"

Have you ever replaced receptacles, switches, installed dimmers and fans, diagnosed and repaired wiring problems, hmmmm?

-Hal

 

[electrofelon]

Have you ever replaced receptacles, switches, installed dimmers and fans, diagnosed and repaired wiring problems, hmmmm?

-Hal

Some clever wording on the invoice changes it from a repair to an upgrade or new install and this a capital improvement! At least that is what I hear people do. I, in fact, never have done, nor ever will do any repairs.

 

[jim dungar]

Have you ever replaced receptacles, switches, installed dimmers and fans, diagnosed and repaired wiring problems, hmmmm?

-Hal

Repairs to capital items are usually considered capital improvements.

 

[electrofelon]

Repairs to capital items are usually considered capital improvements.

I don't know the exact wording of the law in New York, but that was kind of always my take that most things can be considered a capital improvement.

 

[Mr. Serious]

Here is a short explanation of the way different states' policies differ: https://www.salestaxinstitute.com/Sales_Tax_FAQs/contractors_purchases_sales_tax

I had found a long document from the state of Kansas that really explained the reasoning behind why they do it that way, but I can't find it right now. Oklahoma seems similar to Kansas, except in Oklahoma, labor is never taxable.

 

[hbiss]

Some clever wording on the invoice changes it from a repair to an upgrade or new install and this a capital improvement!

There is also this thing called a Certificate of Capital Improvement (ST-124) that must be completed by both you and the customer and retained by you in case of audit. One must be on file for every capital improvement job that you do else you have to collect sales tax or are liable for it.

https://www.tax.ny.gov/pdf/current_forms/st/st124_fill_in.pdf

I can tell you that the state auditors have seen every trick in the book so all the clever wording isn't going to help you. They know what they are looking at. All I can say is don't get caught because NYS Department of Taxation is worse than the FEDS.

-Hal

 

[electrofelon]

There is also this thing called a Certificate of Capital Improvement (ST-124) that must be completed by both you and the customer and retained by you in case of audit. One must be on file for every capital improvement job that you do else you have to collect sales tax or are liable for it

That is not true. From the instructions on the form:

If a contractor does not get a properly completed Certificate of
Capital Improvement within 90 days, the contractor bears the
burden of proving the work or transaction was a capital
improvement. The failure to get a properly completed certificate,
however, does not change the taxable status of a transaction; a
contractor may still show that the transaction was a capital
improvemen.

Now filling the form may certainly be the safest, But in my experience hardly anybody anybody fills this form, and the tax department seems to just assume that all construction is a capital improvement. I have actually never seen one of these forms in the wild , whether it be Is provided by me, or someone who did work for me.

 

[gadfly56]

That is not true. From the instructions on the form:

If a contractor does not get a properly completed Certificate of
Capital Improvement within 90 days, the contractor bears the
burden of proving the work or transaction was a capital
improvement. The failure to get a properly completed certificate,
however, does not change the taxable status of a transaction; a
contractor may still show that the transaction was a capital
improvemen.

Now filling the form may certainly be the safest, But in my experience hardly anybody anybody fills this form, and the tax department seems to just assume that all construction is a capital improvement. I have actually never seen one of these forms in the wild , whether it be Is provided by me, or someone who did work for me.

I know that my company fills out the NJ equivalent all the time for very large projects.

 

[electrofelon]

I know that my company fills out the NJ equivalent all the time for very large projects.

I am curious how many people in NY religiously fill out the form. I have always known about the form, but like I said I have never seen anybody actually use it use it in 20 years in the biz.

 

[Dennis Alwon]

I and many contractors have called the NCDOR for clarification. I got a different answer every time I called. It is different in most states but in NC if the job is on a permit then it is considered a capital improvement thus no tax on labor however since I don't pay tax to my supplier I charge tax after I mark up my item.

We were told if you pay tax at the supply company and then mark it up then you must pay sales tax again and not just the difference. I found it easier to get a no tax on my account.

Not sure how they deal with it on contracts. They may just charge a percentage of the job-- not sure.

 

[hbiss]

I am curious how many people in NY religiously fill out the form.

All the time. A lot of commercial customers will give you one without asking. Otherwise it's automatically included with the invoice. If I don't get a completed Certificate of CI they get charged tax.

-Hal