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.
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 he is the prime contractor or the subcontractor) buys the item that he will convert into real estate in finished form:
- The tax base is what such construction contractor pays for the item.
When the construction contractor-installer (whether he is the prime contractor or a subcontractor) is also the manufacturer of the finished item that he will incorporate into real estate for his customer:
- The tax base is what such construction contractor pays for the materials that he incorporates into such finished item,
- Plus whatever such construction contractor may pay for nails, screws, or other items of tangible personal property that he buys and incorporates into real estate for his customer in the course of making the installation of the finished item.
Resales of Tangible Personal Property
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 would not be taxable sales.
However, in this situation, the construction contractor, real estate developer, or speculative builder would be making taxable resales.