# Can my contractor bill me sales tax on his overhead?



## Anti-wingnut (Oct 18, 2009)

You would add sales tax because it is required. Does HomeDepot add sales tax to the entire price of a 2x4, or only that portion of the price which reflects materials, and not overhead and profit?

When you go to a restaurant, is sales tax calculated on the entire bill? How about when you get a haircut?:whistling2:

I bet your contractor just loves you :wallbash:


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## Sheila4467 (Nov 5, 2009)

It depends. 

For instance in Texas and many other states, labor is not taxable, however, how a contract is presented will determine it's taxability, and States have different laws, so it's not as cut and dry as if you were purchasing just materials. eg. One price contract.

Residential vs Commercial etc. They are all different, so you will have to check with your state.


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## Bob Mariani (Dec 1, 2008)

states that tax services will require the contractor to tax the entire bill. labor + materials + overhead + profit = the cost of the job and is taxed.


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## Anti-wingnut (Oct 18, 2009)

Bob Mariani said:


> states that tax services will require the contractor to tax the entire bill. labor + materials + overhead + profit = the cost of the job and is taxed.


Bingo

For the record, Shiela lives in Texas, I don't know where Bob lives, and I have lived my entire life in Washington


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## Willie T (Jan 29, 2009)

In all honesty, it is a bit naive to even give much concern to the breakdown of a bill.
If I charge you x for item A, and y for item B... for a TOTAL of "z"...and you have an issue with any of it.................

My next bill will come to you with x and y adjusted relatively to satisfy you. But "z" will remain the same.


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## Anti-wingnut (Oct 18, 2009)

sterling0514 said:


> It's paid to him as income.


No it's not. It is paid as services rendered. What he pays himself is his income:wallbash:

Are you going to be crying when a lumber truck makes a delivery, because Dunn's is charging more for lumber than HD. And he could have got his nails for less at Lowes, and he should have got his felt paper at Stoneway.


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## oh'mike (Sep 18, 2009)

*Anti- wingnut you made me laugh!*

Contractors make so much money-I fill my bath tub will all the old 20's and 50's that won't fit in my Rolls Royce.:laughing::laughing::laughing:


So --OVERHEAD IS HIS PROFIT--yea, o.k.-I've got to figure out what that means.---


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## Ron6519 (Mar 28, 2007)

In NY there is no sales tax on capital improvements. If you do repairs, you charge sales tax, not on jobs such as an addition, new kitchen or bath. 
Check your states laws.
Ron


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## concretemasonry (Oct 10, 2006)

Whether sales is required or permitted to be charged, depends on the state where the transaction (usually the job location) is.

I worked for a material supplier that delivered the materials to the project. In one state we delivered to the sales tax was based/required to be calculated on the unit selling price less the delivery portion. In an adjacent state, we were not permitted to charge sales tax, but the contractor was required to pay directly to the state where the project was located and this was based on the entire material cost including delivery. - It is not easy for the contractor or supplier, especially when things can get audited later.

Dick


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## Anti-wingnut (Oct 18, 2009)

Ron6519 said:


> Check your states laws.
> Ron


Washington requires sales tax on the entire project.


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## Thurman (Feb 9, 2009)

From the classes I have taken, and the paperwork issued: As a licensed contractor in three GA. counties, I am not allowed to charge taxes on labor, nor tax materials which I have already paid taxes on when purchased by me. Now that GA. has State Licensed General Contractors, I'm interested in whether the States Laws would be different than local county's. Thanks, David


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## concretemasonry (Oct 10, 2006)

One way to check on the legality of collecting a tax, let him know you can call the state to make sure he reports the collection of the tax and submits the tax collected to the state. - That usually flushes out everything since he cannot afford to violate the tax laws.


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## Sheila4467 (Nov 5, 2009)

First, I DON'T live in Texas, I live in Southern Maryland, and the information I gave to sterling0514 was from something I had found, and read for my sister-in-law and had sent to her. (she lived in Texas at the time) take a look at this:

http://www.window.state.tx.us/taxinfo/taxpubs/tx94_116.html

If you read it, you will notice just how complicated the tax issue can really be. Leave it to the IRS!

Every state has it's laws concerning this, and then there is the IRS.

Even local lawyers don't know all there is to know about the requirements of this issue, my sister-in-law found that out, and won her case.

There ARE instances where the contractor can tax everything, and it's not only legal, but required, so you have to know exactly what you are doing, and what your state laws are. Don't forget the IRS TOO!!!


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## Anti-wingnut (Oct 18, 2009)

Sheila4467 said:


> http://www.window.state.tx.us/taxinfo/taxpubs/tx94_116.html
> 
> If you read it, you will notice just how complicated the tax issue can really be. Leave it to the IRS!


I do not understand your statement. Why are you complaining about the IRS, using a State of Texas law as your evidence? The OP was concerned about Washington State. It really has no bearing where you or your sister-in-law live.

You're kinda a wingnut aren't you?


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## Sheila4467 (Nov 5, 2009)

This is a MUCH BETTER explanation of how it all works. It's complicated, so get a cup of coffee, and get ready for a full read.

http://www.allbusiness.com/legal/laws-government-regulations-business/337191-1.html


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## jerryh3 (Dec 10, 2007)

What does your contract say?


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## Sheila4467 (Nov 5, 2009)

Wing,
If you can't understand, so be it.

It's not a cut and dry subject, there are many rules, as many as there are states. AND a contractor has to also deal with the IRS rules too.

so if that is too hard to understand, so be it.

To laugh at a newbie is not wise, and doesn't help at all. There was a question asked, and I tried to help. 

The second link is from MY state. It's very good, and shows how complicated this issue really is.

Everyone has the right to ask, and it would be nice to get a kind answer, even if you don't agree.

just my 2 cents...............


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## Gary in WA (Mar 11, 2009)

http://dor.wa.gov/content/QuestionsAndAnswers/article.aspx?id=10434
Be safe, Gary


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## Sheila4467 (Nov 5, 2009)

GBR,
Thank you! NOW I get it.


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## Anti-wingnut (Oct 18, 2009)

Sheila4467 said:


> GBR,
> Thank you! NOW I get it.


 
:wallbash::wallbash::wallbash:


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## Sheila4467 (Nov 5, 2009)

Was I supposed to know you were from Washington? OH! :no::laughing:


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## Willie T (Jan 29, 2009)

We do love our caffeine....


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## Bob Mariani (Dec 1, 2008)

Sheila4467 said:


> Was I supposed to know you were from Washington? OH! :no::laughing:


I guess only if you actually read the original post...


```
I live in Washington State
```


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## Anti-wingnut (Oct 18, 2009)

Bob Mariani said:


> I guess only if you actually read the original post...
> 
> 
> ```
> ...


I don't think reading comprehension is one of Shelly's strong suits. It's funner to tell us about her sister-in-law, and rail against the IRS, especially when it's Texas state tax laws that are to blame.


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## Gary in WA (Mar 11, 2009)

Good thing we are like family, forgive and forget. Sterling, welcome to the forum!
Be safe, Gary


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## Sheila4467 (Nov 5, 2009)

My name is Sheila. 

I have worked for a few contractors, and have had to consider the taxes to include in an invoice in the past, so I do know how complicated it can be to help someone to understand their charges and the situation. That sometimes even included, explaining what the IRS required of us. 

It's all about helping the customer understand the charges he questions.

I'm here to learn too, and with no indication of someone's profession, or where they live, how would a newbie know if the information is fact or an opinion?

So I Offered my own experience, and tried to help.

Calling me wingnut didn't help anyone.

I do offer my apology for any stress this may have caused anyone.


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## concretemasonry (Oct 10, 2006)

The original post was addressing SALES TAX, which is controlled by the state and the local municipalities and their laws. The federal government has no direct influence on the sales tax.

If the tax is collected, it must be reported and submitted to the state and local authorities and now the IRS.

If the contractor collects the sales tax (legally or illegally) it must be reported in some way for Federal returns. If it was collected illegally and not paid to the state, the contractor would have some extra money to pay the federal income tax. 

Dick


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## sterling0514 (Nov 11, 2009)

THanks Sheila, I appreciate all your information. It was very helpful.


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## Anti-wingnut (Oct 18, 2009)

sterling0514 said:


> THanks Sheila, I appreciate all your information. It was very helpful.


Huh? GBR was the only one who gave you useful and quantitative information. He gave you a link to the Washington State Department of Revenue. Shiela gave you meaningless links to Texas.

You should say thankyou to GBR


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## Phillysun (Jun 19, 2008)

The contractor or merchant has to pay the state the sales taxes due whether or not the contractor or merchant collects them from their customers. But it varies by state and changes year to year as different tax revenues are needed or special interests are appeased. A lot of the time the way the law is written it is so vague that is up to the discretion of the state auditor which is why contractors and merchants will charge for goods and services where it may be doubtful that they were meant to be taxed.


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## shylover1 (Jan 28, 2010)

sterling0514 said:


> I live in Washington State and my contractor is adding sales tax to his overhead that is profit. Is this right?? It's money that he is charging us for the job done. It's paid to him as income. Why would you add sales tax?


This question is ludicrous on more than one level. I don't want to sound rude or condescending, but you don't seem to have a grasp of business in a service industry, no matter what state you are in.
*Why* would you consider overhead to be profit? Overhead is all of the items that he is paying for to run his business that he pays out monthly (or otherwise) such as insurance (auto, general liability, workers comp and disability), licensing fees, corporation fees, office space (if he has one), office supplies (such as the paper that your contract is written on and the ink it was printed with), utilities such as the phone that you called him on and the electricity used to run the business, the truck lease, gas, and in some cases parking costs, and quite possibly the taxes that he is paying for the salaries of the labor to complete your job. *Profit* is what he receives after he pays materials, labor, taxes, and any and all forms of overhead that he may have to pay out to get your job done. Then that money is put into the business account, from which he will have to write himself a salary check (aka income), which he will also be taxed on (and at least in NYS, comes to upward of 40%; ie if your contractor writes himself a salary check for $1000, the IRS sees it as a check for $1400 for tax purposes).
Contractors can write contracts for jobs in a variety of ways; if he is giving you a contract for the entire job, listing everything that is included and being done for the job with no breakdown of pricing for labor vs materials, then he is including materials, labor, overhead, and any taxes he is required to charge, with an additional amount that he would like to make in profit (which he will never disclose to you and varies between jobs and contractors) included in the price. That is his right for providing the service and trying to run a profitable business. 
If you don't like the price when he presents it, you shouldn't sign the contract. 
If he is only disclosing additional costs for taxes after the fact, that is a different matter that deals with contract law.


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## Anti-wingnut (Oct 18, 2009)

Nice job dredging up the past to beat on someone


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## chrisBC (Dec 28, 2010)

If your contractor charges you tax, that would indicate he is a legit legal established contactor, the kind you want in your home. (at least where I live anyways, if a contractor pays tax (which he should be) then he should be taxing customers on the final bill-materials and labour.


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