Vermont: Contractors Confused About Sales and Use Tax? Watch the Video
- Apr 17, 2014 | Gail Cole
The Vermont Department of Taxes has created a video explaining how sales and use tax applies to businesses that install items. It begins with the basics: an explanation of what sales and use tax is and in what situations it applies. The video then focuses on what building contractors need to know about sales tax.
According to the narrator, confusion around this issue has existed since the inception of Vermont sales tax in 1969. Two months after the state first imposed a tax on sales, the Commissioner of Taxes received a letter asking for clarification on how contractors should apply the sales tax. While state policy has remained consistent since 1969, explains the narrator patiently, common practice may have changed. Thus the video.
The take away
Perhaps the most important take away from this video is how the state defines “contractor” for tax purposes: the contractor is the person installing the item into real property. The person who installs the item into real property is responsible for paying the tax on that item.
That said, the following information is worth noting.
When do contractors pay tax?
The video directly quotes Vermont Regulation Statute 1.9701(5)-1:
“Sales to contractors, subcontractors or repair persons of materials and supplies for use by them in erecting structures or otherwise improving, altering, or repairing real property are retail sales. Once the tangible personal property is incorporated into the real property, the sale of the real property is not subject to sales and use tax, regardless of whether the incorporated tangible personal property is itemized by the seller.”
The narrator explains that contractors should pay tax on all such purchases of materials used to alter or improve real property. Remember, the contractor is the person installing the item into real property.
Drop the resale certificate!
Contractors may not use a resale certificate to purchase materials used to alter or improve real property. In fact, the back of Vermont resale certificates explicitly states, “Not for use by contractors.” Instead, contractors intending to install an item are required to pay sales tax at the time of its purchase.
But the buck doesn’t stop there. The contractor may pass the tax to the customer, noting on the invoice, “The contractor has paid all applicable Vermont taxes on materials used for this job.”
The retailer and the contractor are the same
If the sale includes the cost of the item and its installation, the retailer must pay use tax on the item. An example would be a manufacturer of stone counters who both creates and installs the counters. The use tax should be “reflected in the price charged to the customer at installation for the item installed.”
The retailer sells products that someone else installs
If the retailer sells a product that someone else installs, the retailer should collect and remit sales tax from the buyer. For example, the manufacturer of stone counters sells a counter top to the contractor, who then installs it. The contractor would then note on the invoice to the customer, “The contractor has paid all applicable Vermont taxes on materials used for this job.”
The video explains there has been an increase in sales of granite countertops and similar installed items. Many manufacturers and wholesalers of the countertops act as contractors (defined as the person installing the item into real property), even if they consider themselves to be manufacturers or wholesalers--not contractors.
The video concludes with FAQs that the department has vetted over the last several years. Below is a list of the department’s answers:
- For tax purposes, the contractor is whoever is installing the product into real property;
- No sales tax is due on the mark-up prices;
- Charge sales tax on an item when it is sold uninstalled; and
- Remit use tax on an item when it is sold installed.
Interested in watching the video? Follow the link located on the Vermont Department of Taxes website. Go to Publications, then Fact Sheets, the Contractors and Use Tax: Video.
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photo credit: granite-charlotte via photopin cc