Illinois Sales Tax and Construction Contractors
When Are Sales to Construction Contractors Taxable?
Anybody that has a profit-seeking motive in the construction business will be interested in knowing when sales tax applies to construction contractors.
Persons who engage in selling tools, equipment, fuel, supplies, and other tangible personal property to construction contractors, real estate developers, or speculative builders for use or consumption incur a sales tax obligation.
Anybody that has a profit-seeking motive in the construction business.
Also, persons who—apart from acting as construction contractors themselves—engage in selling building materials, fixtures, plants, and other tangible personal property to construction contractors, speculative builders, or real estate developers, who convert such items into real estate so as to take such items off the market as tangible personal property, incur Retailers’ Occupation Tax liability when making such sales.
Determining the Tax Base
- When the purchasing construction contractor (whether prime or subcontractor) buys the item that will be converted into real estate in finished form,
→ The tax base is what the construction contractor pays for the item. - When the construction contractor-installer is also the manufacturer of the finished item that will be incorporated into real estate for a customer,
→ The tax base includes:
• Cost of materials used in the finished item
• Cost of nails, screws, or other items of tangible personal property incorporated into real estate during installation
Non-Taxable and Taxable Scenarios
- Not Taxable:
Sales of tangible personal property to construction contractors, real estate developers, or speculative builders who resell such property in the form of tangible personal property. - Taxable:
In the above case, the contractor, developer, or builder becomes the seller and must collect sales tax on the resale of the tangible personal property.
Illinois Sales Tax and Construction Contractors