Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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460.0000 REIMBURSEMENT FOR SALES TAX—Regulation 1700

Annotation 460.0148

460.0148 Offsets—Excess Tax Reimbursement, Construction Contract. A construction contractor is in the business of installing concrete walls on real property for a lump-sum price. The contractor is collecting sales tax reimbursement on the total amount billed to the customer and paying sales tax to the Board. Premade concrete walls are "materials" when installed as improvements to real property. The contractor is the consumer of materials used in making concrete walls when the contract is for a lump-sum price. Since the contractor is the consumer of the materials and it has not paid tax or tax reimbursement on the purchase price of the materials, it owes use tax on the purchase price of the materials. It owes no sales tax on the contract price and may not collect any amount as sales tax reimbursement.

Because the contractor has been collecting sales tax reimbursement on the full contract price, the amount collected constitutes excess tax reimbursement. Such amounts must be refunded to the customer or paid to the state (as the taxpayer has done).

For past periods, the contractor owes use tax on the purchase price of materials which it purchased ex tax. However, under Regulation 1700(b)(4), since the taxpayer did not knowingly collect the excess reimbursement, the use tax liability will be offset by the excess tax reimbursement remitted to the Board. The contractor must immediately cease collecting such amounts from its customers and instead must report use tax on its purchases of materials. 7/17/95.