August 5, 2020
Sales tax in the construction industry

A professional accountant can help construction companies avoid unpleasant surprises at tax time.

Kerby Accounting & Business Solutions specializes in handling bookkeeping, tax preparation and more for the construction industry, among others. We are well versed in how contractors work and get paid within the field, and work to spread the word so sales-tax liabilities and other matters are clear, without surprises at invoice or tax time.

Understand that the examples we’re about to give concerning contracts and taxes concern non-governmental contract work.

Two kinds of construction contracts

There are two main kinds of contracts for construction work — whether it’s for a renovation on a house, extension on an office building or a new structure altogether. One is a lump-sum contract, the other is called a time-and-material contract.

A lump-sum contract means that the construction firm gives one total for the entire project. That means the company must include all labor, materials, supplies, profit and overhead in one main figure for the client.

A time-and-material contract, on the other hand, is more detailed and involved. It’s based on the rates of pay for workers at the site, as well as each supply and material used (lumber, equipment rental, concrete) paired with overhead and profit-margin figures.

Which contract you choose can effect when you pay sales tax on materials purchased to do the job.

A lump-sum contract in Florida, for example, means the contractor pays sales or use taxes when he or she purchases supplies and materials, all at once. But the more-detailed time-and-materials contract means that the state of Florida would treat that same contractor as a reseller. So the contractor buys the stuff and is tax exempt, showing a resale certificate at time of purchase, charging the client the sales tax on the materials and supplies.

Then, of course, the State of Florida needs a sales or use tax check for gross sales on the new construction. See a professional accountant for more on how this works, and how subcontractors working under contractors may have sales-tax liabilities if they buy supplies during the course of a job.

We are always more than happy to answer your questions on construction and other business industries. Call Kerby Accounting & Business Solutions at 407-718-6479.

Kari Kerby

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