Last year our State and Local Tax team developed a four-part series to provide insight into sales tax considerations during the bidding process. Given the current economic and business climate, these insights still hold true for 2023.
As inflation remains high and material and supply costs follow suit, controlling your bottom line remains as important as ever. One way contractors can do this is by managing how sales and use tax is considered through their bidding process.
Because this remains such a timely and relevant topic for contractors, we are revisiting our four-part series, linked below.
Part One: An Overview of Sales Tax Implications to Consider in the Construction Contractor Bidding Process
This article provides a high-level summary of important questions to ask to make sure money isn’t left on the table, including:
- Who is the customer?
- What activities are we performing under this contract?
- How will we bill our customer?
Part Two: Who is the Customer?
This article highlights the considerations for sales tax exemptions based on who the work is being performed for and touches on the specific rules for Pennsylvania and New Jersey.
Part Three: What Activities Are Being Performed Under This Contract?
Here we address how to determine what activities are being performed under the contract. Contractors are generally considered to be performing either construction activities or sales activities. Sales tax considerations and rules are different based on what type of activities are being performed under the contract. This article also provides a high-level review of Pennsylvania and New Jersey’s rules for what constitutes real property versus tangible property.
Part Four: How Are We Billing Under This Contract?
The last article in the series focuses on lump sum and time and material contracts. Each type of contract should be reviewed on a state-by-state basis for sales tax considerations. Both types of contracts have their advantages and disadvantages and are defined and treated differently on a state-by-state basis.
As your company reassesses the impact of sales and use tax on contracts, please contact the authors below or any member of our State and Local Tax team or our Construction Industry Group.
Reed Brown, Manager, State and Local Tax
Kate Stewart, Director, Tax Strategies
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.
If your business is seeking accounting expertise and advice, please consider Kreischer Miller and contact us to have a conversation.