Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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190.0000 CONSTRUCTION CONTRACTORS—Regulation 1521

Annotation 190.0585


190.0585 Owner of Gravel Pit is Supplier—Not Subcontractor. Taxpayer, a licensed construction contractor, owned a gravel pit from which it extracted aggregate and sold the aggregate and road mix to other contractors. A prime contractor had a construction contract with a real property owner to furnish and install these materials. The prime contractor requested the taxpayer to submit alternative bids, one as materials supplier and the other as subcontractor. Under the bid as subcontractor, the taxpayer would charge the prime contractor an amount for applying the materials sold; however, the prime contractor would actually apply the materials itself and would also charge that same amount back to the taxpayer. The job contract would treat the taxpayer as the construction contractor so that no sales or use tax would be due on the taxpayer's use of its own aggregate.

Since the prime contractor had the responsibility under its construction contract to affix the aggregate and road mix, and actually did so, the prime contractor is the construction contractor under Regulation 1521, not the taxpayer. The taxpayer is instead the seller of the materials and is not regarded as the consumer of its own aggregate. For sales and use tax purposes, the purported subcontract between the taxpayer and the prime contractor would be treated as a taxable sale of materials to the prime contractor, not as a contract for the taxpayer to furnish and install the materials. 2/19/88.