Sales Tax Questions from Contractors
With summertime around the corner, a lot of our clients have been asking us about the sales tax that they need to collect from their clients.
For example, a client of ours that sells kitchen cabinets might want to know if they need to collect sales tax on the merchandise that they sell to their own clients.
The issue boils down to the difference between tangible personal property and real property improvement.
Key Guidelines for Sales Tax
For Sellers of Cabinets, Fixtures, and Similar Items
Any person engaged in the business of selling cabinets, fixtures and similar custom-made or stock items shall:
- Register as a dealer.
- Collect and remit the tax on the sales price of the finished items.
Note: Charges for labor in installing such tangible personal property are not subject to the tax when billed separately to the consumer.
For Contractors Incorporating Materials into Real Property
Any person who contracts to furnish tangible personal property and perform services under the contract by:
- Building cabinets, fixtures, and similar items at the job site, and
- Incorporating the same into real property construction
…shall be classified as a contractor and shall:
- Pay the tax on the cost price of all tangible personal property purchased or consumed in performing a contract.
Relevant Legal Reference
Ga. Comp. R. & Regs. R. 560-12-2-.94
Need Further Guidance?
Call any of our offices to discuss your sales and use tax audit.
Frequently Asked Questions
Do contractors need to charge sales tax when installing cabinets?
No, if a contractor separately states labor charges for installation on the invoice, those charges are not subject to sales tax. Only the tangible personal property portion (like pre-made cabinets) is taxable when sold by a dealer.
How is a contractor different from a cabinet seller for tax purposes?
A contractor who builds and installs cabinets as part of a real property improvement pays sales tax on the materials they purchase. In contrast, a seller who sells pre-made cabinets must collect and remit sales tax on the final sale price to the customer.
What qualifies as tangible personal property in this context?
Items like stock or custom-made cabinets and fixtures are considered tangible personal property. When sold separately (not as part of a construction contract), they are subject to sales tax.
When does sales tax apply to custom-built items?
Sales tax applies to the sale price of custom-built items when sold as tangible personal property. However, if those items are fabricated and installed by a contractor as part of a construction job, tax is due on the materials, not on the full price charged to the customer.
Do I need to register as a dealer if I only install cabinets?
If you only build and install cabinets as part of real property improvements, you are classified as a contractor and do not need to register as a dealer. However, if you sell cabinets directly to clients (not just install), registration as a dealer and collection of sales tax is required.