Wednesday, May 21, 2014

Prime and Subcontractors' Tax Liability

The prime contractor’s contract determines the tax application for all subcontractors. If the prime’s contract is for a qualified utility construction project subject to tax under 10-46B, the subcontractor’s contracts are also subject to tax under 10-46B.
 
Projects that are not qualified utility projects (tax applies under 10-46A)
 
Prime Contractors:
  •  Owe 2% contractors’ excise tax on their gross receipts.
  •  Include the value of material furnished by the owner in their gross receipts subject to the contractors’ excise tax.
  • Owe 4% state, plus applicable municipal use tax on materials furnished by the owner if the owner does not document sales or use tax was previously paid
  • Owe 4% state, plus applicable municipal use tax on material they furnish for the contract if sales or use tax was not previously paid.
  •  Must issue prime contractor exemption certificates to all subcontractors.
  • Cannot deduct amounts paid to subcontractors in determining gross receipts subject to the contractors’ excise

Subcontractors:
  • Do not owe the 2% contractors’ excise tax IF a prime con- tractors’ exemption certificate is received for the project.
  • Owe 4% state and applicable municipal sales or use tax on material the subcontractor furnishes for the contract.
 
Qualified Utility Projects (tax applies under 10-46B)
 
Prime Contractors:
  • Owe 2% contractors’ excise tax on their gross receipts.
  • Do not include the value of the owner furnished material in their gross receipts subject to the contractors’ excise tax.
  •  Owe 4% state and applicable municipal use tax on materials furnished by the owner if the owner does not document sales or use tax was previously paid.
  • Owe 4% state and applicable municipal sales or use tax on material they furnish for the contract.
  •  Cannot issue prime contractor exemption certificates to subcontractors for a qualified utility project.
  •  Cannot deduct amounts paid to subcontractors in determining gross receipts subject to the contractors’ excise tax.
 
Subcontractors:
  • Owe 2% contractors' excise tax on their gross receipts.
  • Owe 4% state and applicable municipal sales or use tax on material the subcontractor furnishes for the contract.
  • Cannot accept a prime contractors' exemption certificate for a qualified utility project.
 
Learn more about Contractors' Excise Tax.