Who pays the sales tax in a construction setting? Normally, the sales tax is paid on the materials when it is purchased. If not, you need to make sure it is correctly listed on the invoice as a separate line item. Subcontractors are simply not off the hook. They need to show that they have also paid their sales tax.
Transcript
Is it the general contractor, the subcontractor, or the customer that pays a sales tax on the materials used in a construction job? I’m Mansoor Ansari with Nexus Tax Defense. The general rule is that sales tax is paid on materials used in construction at the time of the purchase. If you do not pay sales tax at the time of the purchase on your construction materials, then you would have to itemize your bill to your client and have the sales tax broken out on a separate line item to clearly show how much they have paid. Again, you are also breaking up the labor separately as well so that there is no confusion on how much sales tax needs to be paid. Whether you are the general contractor or the subcontractor, you will need to collect and pay sales tax on the construction materials. So you’re simply not off the hook when you’re a subcontractor.
But what happens when you’re dealing with an exempt organization? Try your best to have them purchase all the materials using their tax exempt status. That way, you don’t have to worry about paying sales tax at the point of purchase on your construction job. This would in turn be a labor-only job, and make sure to note this as such on your invoice.
Remember, most states don’t allow contractors to use an organization’s tax exempt status unless a contractor is the tax-exempt organization’s authorized agent. But what happens when sales tax is due on materials purchased in one state but used in another state? For the most part, you will be paying use tax in the state where the materials are being used for construction. Since each state uses its own rules, make sure to check on the specifics before you get started on your construction project. Thanks for listening.
