SALES AND USE TAX ON CONSTRUCTION MATERIALS WHO PAYS IT, AND WHERE IT GOES IN THE BID.
In most states, a contractor installing materials into real property under a lump-sum contract is treated as the consumer of those materials. The contractor pays sales tax when it buys them, or owes use tax if the supplier did not charge it, and does not charge sales tax to the customer. Some states treat contractors as retailers on certain contracts, and tax-exempt owners have their own rules. Since the tax is a cost of materials, it belongs in the estimate and the job cost.
Sales and use tax errors usually turn up years later in a state audit, when the auditor samples invoices and finds materials bought from an out-of-state supplier with no tax charged. The use tax, interest and penalties come out of profit on jobs that closed long ago. The other common error is on the bid side: an estimator who prices materials before tax and a job that loses several points of margin on every material invoice. Rules differ a great deal by state, so the details belong to your CPA or a sales tax specialist.
WHAT IT MEANS.
Use tax is the tax a buyer owes to its state on taxable materials bought without sales tax, such as from an out-of-state supplier, at the same rate sales tax would have been.
This page describes how most states treat contractors in general. Your state's rules, your contract types and your customers decide what applies to you.
WHERE SALES TAX COSTS SUBCONTRACTORS MARGIN.
Materials bought out of state with no tax and no use tax
An online supplier or an out-of-state distributor ships materials with no sales tax on the invoice. The company pays the invoice and never accrues use tax. In an audit, the state assesses the tax on every such invoice in the sample period, plus interest and penalties.
The estimate prices materials before tax
The estimator builds the materials number from supplier quotes that do not include tax. On a job where the contractor is the consumer, the tax is part of the cost, and leaving it out takes several points off the material margin on every invoice.
Exempt projects handled without the right paperwork
Work for a school, a government agency or a nonprofit may be exempt from tax on materials, or may not, depending on the state and how the contract is written. Contractors who assume the exemption and skip the certificates find out in an audit.
WHAT IT LOOKS LIKE IN DOLLARS.
In most states the contractor is the consumer of the materials and pays the tax to its supplier or as use tax.
Some states treat the contractor as a retailer when materials are sold or billed separately, and the contractor collects sales tax from the customer.
Rules for government, school and nonprofit projects vary by state and often require specific certificates or purchasing agent arrangements.
THREE HABITS THAT KEEP SALES TAX OUT OF AN AUDIT.
Review supplier invoices at entry. When taxable materials come in with no sales tax, record use tax to the job and file it with the state. Most accounting systems can flag vendors that do not charge tax so the review takes seconds.
Price materials including the tax you will pay, at the rate for the job location. Check the estimate template so the tax line is calculated, and compare the job cost report against it at month end.
Ask your CPA or a sales tax specialist for a one-page summary of how your state treats your contract types and exempt customers, and keep exemption certificates with the job file.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Up to $1M | $1,900 to $3,300 | $1,000 |
| $1M to $3.5M | $2,600 to $5,300 | $1,500 |
| $3.5M to $6.5M | $3,800 to $8,300 | $3,000 |
| $6.5M to $9.5M | $5,100 to $11,800 | $4,500 |
| $9.5M to $12.5M | $6,100 to $14,900 | $6,000 |
| $12.5M to $15.5M | $7,400 to $17,650 | $7,500 |
| $15.5M to $18.5M | $9,400 to $22,400 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
Your bookkeeper still does the books.
Every job shows its margin while it is still open.
Everything in Core, plus the bookkeeping and bank reconciliations done for you, and the job costing and WIP software set up, loaded with your cost codes, and managed every month. Use your own online software, or move to ours and we cover it.
A bookkeeper we choose does the books and reconciliations. No payroll.
You approve, and the money side gets handled.
Everything in Strategic, plus a controller we choose who handles your bills and receivables for you the way an in-house controller would. They call vendors, pay the bills and keep the accounting current. We plan the cash flow first, and you approve every payment because it is your money.
A controller we choose does the payables and receivables. No payroll, no pay applications, no collections.
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