Two things that most construction companies already know, especially those who operate on both sides of a state line: sales and use tax rules vary from state to state; and there’s an exception to almost every rule. With those caveats in mind, here are six general things every construction company should know about sales and use tax.
- When you purchase materials and supplies as a contractor or subcontractor you are the final consumer of such items and should pay tax on the full purchase price.
- If the project itself is exempt (e.g. you have received a Project Exemption Form for a Kansas job, or it is for an exempt organization on the Missouri side), that exemption can flow through to your supplier.
- If you also sometimes act as a retailer, and you purchase materials and supplies that may either be sold at retail or used by you in completing a job, you may purchase those items for resale and provide a resale certificate to your vendor. For those items you sell at retail, you must collect and remit sales tax (unless your customer provides a valid exemption certificate). For those items you remove from inventory for use on a job, you must accrue and remit sales/use tax (again, unless they are for an exempt project).
- The tools and equipment you purchase for use on jobs are taxable. If you are leasing a piece of equipment for use on a particular project that is exempt, you can lease that equipment free from tax.
- Construction labor in Missouri is not taxable.
- The general rule in Kansas is that services for installing or applying tangible personal property (e.g. paint, drywall, lumber, windows, guttering, wallpaper, carpet, lighting, etc.) are taxable. There are two primary exceptions:
- Original construction, reconstruction, restoration, remodeling, renovation, repair, or replacement of a residence; and
- Original construction of a nonresidential building or facility, which includes brand new buildings plus the addition of an entire room or floor to an existing building; the completion of any unfinished portion of an existing building; and the reconstruction or replacement of a building that has been damaged or destroyed by fire, flood, tornado, etc.
By keeping these six general rules in mind, and consulting your tax professional when needed, construction companies can avoid most sales/use tax problems they might otherwise face.
If you have any questions, please contact your MarksNelson professional at 816-743-7700.
About the author
Nicole Eshnaur works with businesses to assist them in preparing their financial statements, planning for their tax situation, managing their cash flow and payroll needs, and forecasting their future financial needs. She can assist with accounting software consulting and training, as well as accounting staff training.