22 VOLCADO O ENGANCHADO

The Missouri sales tax is an excise tax imposed on the privilege of engaging in the business of making retail sales of tangible personal property and certain taxable services. The amount of tax is based on the seller’s gross receipts. Although the tax is imposed on the seller, the economic burden of the tax is borne by the purchaser. A seller who fails to collect sales tax from a purchaser is liable for the amount of tax due on the purchase. The Missouri use tax is an excise tax on the privilege of storing, using, or consuming tangible personal property in the state.

II. Sales and Use Tax Imposition on Contractors

a. What are the sales tax requirements of purchasing materials and supplies for use in a construction project?

Contractors are taxable as final purchasers and consumers of tangible personal property used by them in fulfilling their contracts.

2. Does the State allow contractors to purchase materials exempt: (1) for resale, (2) for exempt entities, (3) federal government, and (4) out-of-state entity? If yes, what documentation must the contractors retain to evince the exempt character of the transaction?

(1) Contractors can be dual operators who buy for both consumption and resale. For items that are being purchased both for consumption and resale, the

contractors can issue an exemption certificate to the seller and pay use tax when the items are removed from inventory. When items are resold, the contractor is considered a seller and is responsible for the collection of sales tax. (Regulation 10-3.031) S/B 10-112.010

(2) Contractors may purchase construction materials and supplies for constructing, repairing or remodeling facilities for exempt entities. Exempt entities include local political entities, religious and charitable organizations, public schools and private, nonprofit institutions of higher education. The contract must be for a purpose related to the exempt entities function and activities. The exempt entities must provide the contractor with a Missouri project exemption certificate, along with a copy of their Missouri exemption letter, authorizing the purchases for the contract. The contractor then issues copies of the exemption certificate/letter to its subcontractors and to all suppliers. Suppliers should issue invoices with the name of the exempt entity and the project identification number. The contractor must retain all purchase invoices for that project for a five-year period (Annotations 21, 580.120)

(3) Contractors are liable for purchases of materials and supplies to be used in connection with a contract with the federal government. The federal government cannot issue a Missouri project exemption certificate. However, the use of title vesting clauses in government contracts can provide that the Federal Government takes title to materials upon purchase by the contractor. In this instance, the contractor is “reselling” the materials to the Federal government and no tax would be due from the contractor. Alternatively, the materials can be directly billed from the supplier to the federal government. (Annotations 21,580.40)

(4) A contractor can purchase on behalf of an out-of-state entity tax exemption as long as the entity is authorized to issue a certificate of exemption for purchases. III. Improvements to Realty

What constitutes a contract?

The term ‘contractor’ means any person entering into an agreement to improve, repair, replace, erect of alter real property. The term ‘contractor’ does not include any person selling carpet, drapes, sod, or other items when title to the property passes to the purchaser prior to being commingled with and becoming part of the real property. (Regulation 10-3.028) repealed 3/30/01 now 10-112.010

IV. Repair and Maintenance Contracts/Services

1. What is the sales and use taxation of repair and maintenance contracts? If the contract is for the repair or maintenance of real property, then the contractor is the

consumer of all purchases with regard to the contract. If the repair or maintenance to be performed is to tangible personal property, then the purchaser can issue a resale certificate and collect sales tax on parts sold to the end consumer. (Regulation 10-3.072) repealed 4/30/01 now 10-112.010

2. What are the taxable services related to the use of contractors?

With the exception of fabrication labor, tax generally does not apply to services. 5. Use Taxes

What is the application of the State’s use tax on materials and supplies purchased outside the State and used within the State?

A contractor should pay use tax on all materials and supplies purchased from an out-of-state supplier. However, if the out-of-state supplier is not registered to collect Missouri use tax, the contractor is liable to pay the use tax directly to the Department of Revenue. (Regulation 10-4.075) repealed 3/30/01 now 10-112.010 VI. Construction Contracts

a. Does the State address different types of contracts, and if so, does the State have specific rules that apply to different types of contracts?

No, different types of contracts do not have separate rules. 2. Does the State have specific contractor regulations? XXII. Yes, 12 CSR 10-112.010

3. What are the tax obligations of subcontractors?

Subcontractors are subject to the same tax obligations as contractors. VII. Machinery and Equipment Exemption and Contractors

a. Does the State have a manufacturing exemption for machinery and equipment purchased to produce tangible personal property? Yes. (Regulation 10-111.010)

2. Is there a specified exemption for a contractor to take advantage of a machinery and equipment exemption?

Mo. Reg 10-111.010(3) ( c ) allows a “flow through” of the machinery and equipment

exemption to a contractor as long as the items are ultimately used in an exempt manner. c. How may a customer take advantage of the machinery and equipment

exemption in the State when using a contractor?

Contractors holding valid seller’s permits may purchase machinery and

equipment for resale by issuing resale certificates to their suppliers. Contractors may also issue manufacturing equipment exemption certificates to their suppliers. 4. What are the rules for obtaining an exemption certificate or permit in the

State?

A seller’s permit is only required for construction contractors who makes retail sales of tangible personal property.

VIII. General Planning Suggestions

Surplus Materials Purchased Tax Exempt under a Project Exemption Certificate

Any surplus materials or supplies that were purchased for a tax-exempt entity’s contract should either be returned to the supplier for credit or refund of the contractor must by use tax directly to the Department of Revenue for those items.

Conducting Business with a Registered Contractor

Doing business with a contractor that is properly registered for sales and use taxes in the state where the project is located is strongly advised. Ideally, a contractor should be required to prove that they have a valid registration prior to the

awarding of the contract. Where a contractor is not properly registered in the state where the work is performed, the contracting party may be subject to use tax on items furnished under the contract.

Consumption of Self Manufactured Materials

The taxable measure of self manufactured items consumed by a contractor in Missouri may be significantly reduced by virtue of the favorable decisions rendered in the Morton Builder’s line of court cases.

NEVADA

I. Overview

The Nevada sales tax is imposed on gross receipts from sales at retail of tangible personal property and certain enumerated services. A complementary use tax is imposed on the storage, use, or other consumption of tangible personal property and certain enumerated services. (Chapter 372, Nevada Revised Statutes). In Nevada, a construction contract is defined as a contract for (1) erecting, constructing or affixing a structure or other improvement to real property, or (2) remodeling, altering, adding to, or repairing an improvement to real property. Construction contractors are the consumers of property used in the performance of a construction contract.

II. Sales and Use Tax Imposition on Contractors

a. What are the sales tax requirements of purchasing materials and supplies for use in a construction project?

A construction contractor is the consumer of the tangible personal property purchased for use in improving real property under a construction contract. Tax applies to the contractor's purchase price of materials, supplies, and tools. (NAC 372.200).

b. Does the State allow contractors to purchase materials exempt: 1) for resale; 2) under direct permit authority; 3) for use in a project of an exempt organization; 4) other? If yes, what documentation must the contractor retain to evince the exempt character of the transaction?

1) Construction contractors who are registered sellers in Nevada can issue a resale certificate to their supplier and report the use tax to the state in the period in which that tangible personal property is committed to the performance of a construction contract.

A contractor may not issue a resale certificate for purchases of

construction materials, supplies or tools which are ordinarily used by the contractor in the performance of a construction contract unless the contractor is engaged in the business of retailing the property prior to use. (NAC 372.210)

2) Nevada has no provision to authorize a taxpayer to pay sales or use tax due on purchases directly to the Department of Taxation.

3) Contractors may not purchase materials exempt for use in a project for an exempt organization.

4) Tax is imposed on the purchases of tangible personal property by a contractor under the performance of a construction contract for a government, religious or charitable entity (which is otherwise exempt) unless the contractor is a constituent part of that entity. (NRS 372.340; NRS 374.345).

III. Improvements to Realty

What are the sales and use tax implications of improving realty? Nevada defines a construction contract as a contract for (1) erecting, constructing, or affixing a structure or other improvement to real property or (2) remodeling, altering, adding to, or repairing an improvement to real property. Fixed price contracts, cost reimbursement contracts, lump-sum contracts and time and material contracts are all considered construction contracts. (NAC 372.190).

If property purchased under the terms of a construction contract is

incorporated into real property, the contractor is responsible for payment of tax on its purchases of construction materials. There is a presumption that any tangible personal property purchased by the construction contractor for use in the performance of a construction contract for improvement to real property shall be deemed to have been purchased for use in improving real property. (NAC 372.200).

It is recommended that a consumer obtain a statement from the contractor indicating all sales and use taxes have been paid on the materials and supplies consumed in the project.

IV. Repair and Maintenance Contracts/Services

a. What is the sales and use taxation of repair and maintenance contracts? In Nevada, repairmen are classified as both retailers and consumers when

performing under a repair contract. The type of repair will determine whether the repairmen are retailers or consumers of the tangible personal property involved with the repair.

Repairmen are the retailers of parts and materials furnished under a repair contract if the value of the parts and materials is substantial in relation to the total charge.

Repairmen who segregate on their invoices and in their records the fair retail selling price of the parts and materials from the charges for labor, installation and other service charges must collect tax on the retail selling price of the parts and materials. If the labor, installation and other service charges are not separately stated, the tax applies to the total charge made to the customer.

Repairmen are consumers of parts and materials furnished in connection with a repair contract when the value of the parts and material is not substantial in relation to the total charge if no separate charge is made for the parts and materials. To be considered the consumer of the parts and materials, the repairmen must pay the tax on the

purchase of the parts and materials and not give a resale certificate to their suppliers. Even if the value of the parts and materials is not substantial, the repairman will be considered a retailer if a separate price is state for the parts and materials.

Contractors performing under both construction contracts and repair contracts will still be considered consumers under the construction contract even if they are retailers under a repair contract.

V. What are the taxable services related to the use of contractors?

With the exception of fabrication labor, tax generally does not apply to services. Repair and installation labor charges are not subject to tax if separately stated on the invoice. (NAC 372.390).

VI. Use Taxes

What is the application of the State’s use tax on materials, supplies and services purchased outside the State and used within the State?

Use tax is imposed on the use or consumption of tangible personal property. For

construction contracts, if the sales tax was not paid, then the use tax applies based upon the sales price of the property to the contractor. (NAC 372.200).

VII. Construction Contracts

a. Does the State address different types of contracts and, if so, does the State have specific rules that apply to different types of contracts?

Different types of construction contracts do not have separate rules.

Nevada Regulation 372.190 includes all types of contracts in the definition of a construction contract. Fixed price contracts, cost reimbursement contracts, lump-sum contracts and time and material contracts are all considered construction contracts. Regardless of the type of construction

contract, the contractor is the consumer of the tangible personal property used in the performance of the construction contract to improve real property.

b. Does an exemption exist for the transfer of tangible personal property from a contractor to a customer, which would allow the use of a split contract? No, there is no exemption or advantage to split contracts in Nevada. c. Does the State have specific contractor regulations?

Yes, Regulations 372.190, 372.200 and 372.210.

d. What other definitions or terms of contracts are addressed in the sales and use tax statutes and regulations?

Regulation 372.190 defines the terms “construction contractor”, “construction contract”, and “construction contract for improvement to real property.” e. What are the tax obligations of subcontractors?

Subcontractors are subject to the same tax obligations as contractors. (NAC 372.190).

f. Machinery and Equipment Exemption and Contractors

f. Does the State have a manufacturing exemption for machinery and equipment purchased to produce tangible personal property?

No.

g. Is there a specific State exemption for a contractor to take advantage of the machinery and equipment exemption?

No.

h. How may a customer take advantage of the machinery and equipment exemption in the State when using a contractor?

Not applicable.

i. What are the rules for obtaining an exemption certificate or permit in the State?

A sales and use tax permit is only required for construction contractors who makes retail sales of tangible personal property.

j. General Planning Suggestions

Construction contractors doing business in the state are required to be registered with the Nevada State Contractors Board. Doing business with a contractor that is properly registered for sales and use taxes purposes, in the state where the project is located, is strongly advised. A contractor should be required to prove that they have a valid registration prior to the awarding of the contract. Where a contractor is not properly registered in the state where the work is performed, the contracting party may be subject to use tax on machinery and equipment furnished under the contract.

In Nevada, exempt organizations are not granted flow-through exemptions for the contractor’s purchases of materials used under the construction contract. In order to preserve their tax-exempt status, for certain types of contracts, exempt organizations might consider purchasing the materials directly and contract separately for the installation. The materials

purchased by the exempt entity would be a non-taxable transaction and tax is not imposed on contractor installation charges.