Sales Tax Question

[geekgirldany]

This goes back to a post on a customer's sales tax deduction being audited.

He came by today with his receipts. He built the house himself. Got the contractors to do the work. The contractors then presented him with a bill to pay. Now included in these bills is the labor but it also includes materials purchased. From TTB I looked at Notice 2005-31. The following stood out to me:
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If the amount of a sales tax is separately stated and paid by the consumer (other than in connection with a trade or business), the amount of the tax is treated as a tax imposed on and paid by the consumer rather than the seller. Therefore, the consumer may deduct sales taxes that are imposed on the seller if the tax is separately stated (as on a contract or receipt) and paid by the consumer. Section 164(b)(5)(G).
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So does this mean that if the sales tax was not separately stated on the invoice from the contractor then there is no deduction?
Taxpayer can't just say "okay the materials were $500 I'll take 5% of that for sales tax".

Thank you for any help.

[Jiggers]

That's correct

This goes back to a post on a customer's sales tax deduction being audited.


So does this mean that if the sales tax was not separately stated on the invoice from the contractor then there is no deduction?
Taxpayer can't just say "okay the materials were $500 I'll take 5% of that for sales tax".

Thank you for any help.

That is correct. If not separately stated, no deduction.

[BOB W]

I understood, the materials use for construction had to be bought buy the homeowner directly from the supplier. But I guess I stand corrected.

Couldn't the contractor just plug in a number for materials that is high than what was paid. What documentation would be needed if audited?????

[geekgirldany]

Thank you.
Some of the materials were directly purchased by taxpayer but not up to the amount claimed. A fairly large difference.

[geekgirldany]

Couldn't the contractor just plug in a number for materials that is high than what was paid. What documentation would be needed if audited?????

More than likely it is a higher number than what was actually paid. It is rounded figures on most of the receipts.
I suppose the customer/taxpayer would have to get the contractor to state exactly how much sales tax was paid on the purchase of the materials on the contractors invoice and/or have the contractor give the receipts where he purchased the materials showing the amount of sales tax paid.

[taxxcpa]

Sales tax

This goes back to a post on a customer's sales tax deduction being audited.

He came by today with his receipts. He built the house himself. Got the contractors to do the work. The contractors then presented him with a bill to pay. Now included in these bills is the labor but it also includes materials purchased. From TTB I looked at Notice 2005-31. The following stood out to me:
==
If the amount of a sales tax is separately stated and paid by the consumer (other than in connection with a trade or business), the amount of the tax is treated as a tax imposed on and paid by the consumer rather than the seller. Therefore, the consumer may deduct sales taxes that are imposed on the seller if the tax is separately stated (as on a contract or receipt) and paid by the consumer. Section 164(b)(5)(G).
===

So does this mean that if the sales tax was not separately stated on the invoice from the contractor then there is no deduction?
Taxpayer can't just say "okay the materials were $500 I'll take 5% of that for sales tax".

Thank you for any help.

On a lump-sum contract the tax is paid when the contractor purchase the materials which is totally different than what amount he may add to his billing to recover his costs. He may buy something for $ 100 and add $ 200 to his bill. The state considers the contractor the consumer of the materials, not as a re-seller.

Contractors usually only bill separately for materials when it is a school or church since they can give him an exemption certificate and he can give a resale certificate which means noone pays the tax.

[Jesse]

On a lump-sum contract the tax is paid when the contractor purchase the materials which is totally different than what amount he may add to his billing to recover his costs. He may buy something for $ 100 and add $ 200 to his bill. The state considers the contractor the consumer of the materials, not as a re-seller.

Contractors usually only bill separately for materials when it is a school or church since they can give him an exemption certificate and he can give a resale certificate which means noone pays the tax.

I think each state's laws need to be carefully checked and it depends on how the contractor is set up and sales tax paid. I had a contractor do an addition for a church. The church did issue an exemption certificate to the contractor, however, the State of WI requires the church to actually pay the supplier in order to receive the exemption. Because the contractor was not the supplier he could not as the middle man, even with an exemption certificate from the church, exempt the sales tax.

Same theory may carryforward to the sales tax deduction as the contractor is the one that paid the sales tax, not the homeowner, at least by Wisconsin statutes. The contractor does NOT charge sales tax on real property, however the contractor must pay sales tax on materials he uses to build the house. So in effect the homeowner did not pay the sales tax, the contractor did.

[geekgirldany]

Thank you for posting. It really looks like too much was deducted and I am sure will owe some back.
I found in Pub 600 Sales Tax Deduction, contractors:

Under your state law, your contractor is considered your agent in the construction of the home or substantial addition or the performance of a major renovation. The contract must state that the contractor is authorized to act in your name and must follow your directions on construction decisions. In this case, you will be considered to have purchased any items subject to a sales tax and to have paid the sales tax directly.

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The above really doesn't apply to the taxpayer either because he was the contractor.. in my mind. I think he would still have to show receipts for the materials purchased and the sales on that purchase.