Capital gains improvement tax questions:?

Question

Does any one know if a contractor pays tax on products purchased that will installed by that contractor as a capital improvement (permanent fixture and improvement of that home)?

I have been told by contractors that when they purchase the product no tax is paid because they have a federal and state ID number they use where as if I buy the supplies I must pay tax. Is this true?

Answer 1

Judy is right, so don't be suprised if you see sales tax on your contractors bill. If he didn't pay it and it is for resale then he must pass it on to you.

Answer 2

The rules are different for contractors. Plus, we are talking about sales tax, so the rules could be different for each state.

If a contractor is performing a capital improvement to property, then the contractor is responsible for paying sales tax on the cost of the materials used in performing the capital improvement that they purchase. There should not be sales tax on the bill presented by the contractor. However, if there is a reference to tax, it is the tax the contractor is getting reimbursed by the property owner.

If the property owner purchases the materials to be installed by a contractor, then the property owner pays the tax on the materials. There would be no sales tax on the bill.

If a contractor is performing repair, maintenance, installation of tangilbe personal property that does not qualify as a capital improvement, then sales tax would appear on the bill based upon the state's sales tax laws.

Also, it is always the purchaser's responsibility to claim a sales tax exemption. You may need to fill out an exemption certificate to present to your contractor. If you refuse to do this, the contractor can charge tax regardless of the type of work done. The contractor would be responsible for the tax if he gets audited and didn't have proper documentation.

Answer 3

They don't pay sales tax because the items are for resale - to the homeowner. The homowner, who will end up with the items, is the one who pays the tax, whether they buy the items directly from the supplier, or from the contractor who got them from the supplier.