Sales Tax Audit: Texas General Contractor Back Charges
If you are a General Contractor in Texas, then you should be familiar with the term “back charges.” If you do not account for back charges properly in your records, then, the new problem that you will face is double taxation. Yes, you will essentially be charged tax twice on a single transaction only because it looks like separate transactions to your auditor.
In our last audit with a general contractor, Double taxation occurred in the as a result of not accounting for back charges. Back charges are an industrial norm in the construction industry. The Associated General Contractors (AGC), American Subcontractors Association (ASA), and Associated Schools of Construction (ASC) have rules set forth that describe the following. Back charges are an accounting method where Petitioner pays some or all of the material invoices on behalf of a subcontractor or vendor. Thereafter, Petitioner deducts this amount from any total amount which is due to the subcontractor. These are contractual rights set forth between the Petitioner and its subcontractors to offset costs as the project proceeds.
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