When a business hires contractors to repair existing property or build new structures, it's important to take the time to understand the sales and use tax implications associated with these services.
Many times, contractors give complex invoices which can be quite confusing. Trying to determine if tax is due on these transactions gets complicated because tax laws are different for real property construction services as opposed to repairs to tangible personal property.
Real Property vs Tangible Personal Property - What Businesses Need to Understand:
Real property is the building, land, or usually any other property that meets any of the following criteria:
1) It’s permanently attached to the real estate
2) It’s intended to be permanent
3) Removal of the property would cause substantial damage to the real estate
Anything else would be defined as tangible personal property.
Georgia’s Tax Laws for Contractor Services:
In Georgia, real property contractors who repair, construct, alter, or improve real property are considered the ultimate consumers of the materials and supplies used in the real property contract. State law requires these contractors to pay tax on all the purchases that they use for the job.
Georgia Tax Code Sec. 560-12-2-.26(1) states any person who contracts to furnish tangible personal property and performs services thereunder in constructing, altering, repairing or improving real property in this State is deemed to be the consumer of all tangible personal property used or consumed in performing such contract and shall pay the tax thereon at the time of purchase, use, storage or consumption in this State, whichever occurs first.
How Businesses Tax Construction Services - Examples to Consider:
Example 1 - Roofers R Us gives you a quote of $7,500 to install a new roof at your facility. After the service is completed, you receive an invoice for the project.
• This invoice should not include sales tax charges, and your company should not remit use tax for the service.
• Roofers R Us should have already paid sales tax on the roofing materials when they purchased those materials.
• In addition, the labor provided to install the roof is not taxable because real property construction labor is not taxable in Georgia.
Example 2 - You hire a service provider to repair equipment such as a refrigeration unit.
• The repair labor is not taxable, if separately stated.
• The service provider will purchase all the repair parts exempt from tax (under a resale exemption) and then will charge you tax on the sale price of the parts.
Be Sure Your Business Doesn't Overpay Tax on Real Property Contract Invoices:
Many businesses overpay tax by remitting use tax for real property contract invoices. The important lesson is to know what is being serviced to determine if sales tax is due. If you are a business considering tax issues associated with such construction (or other) services - we welcome your comments, questions and/or consultation requests. (See below)
Other recent “Georgia (GA)” posts by Lauren Stinson, CMI:
- When Businesses Retain Contractor Services in Georgia: Tax Tips
- Yikes! I Collected Sales Tax But Didn't Remit to the Georgia DOR
- Sales Tax on Labor: In Georgia, Not All is Created Equal
- A Review of Georgia's Sales Tax Exemption Certificates
- Georgia's New Rule for Itemization of Sales and Use Tax