# Sales taxes for building a new home



## dalepres (Mar 20, 2011)

Ok, I just realized that when I buy materials for building my home, I will have to pay sales tax!

If I hired a builder to build my home, do I pay sales tax on the materials that way? 

If I buy a brand new home in a subdivision built by one of these mega builders, do I pay sales tax?

I've never bought or built a brand new home before. This realization was pretty painful. That is a 10% penalty for building my own home. Is this right?


----------



## Thurman (Feb 9, 2009)

So, I don't build homes. I own/operate a "Household HandyMan" business and yes, I do have to buy materials to do my jobs. Now, do you think that I just pass off the 7% Ga. sales tax and NOT pass it along to the customer? NO. I, personally, don't mark-up materials. I do show, or give a copy of , the original material invoice to the customer showing the material cost AND the taxes paid.


----------



## firehawkmph (Dec 12, 2009)

Dale,
you always pay the tax, like living and breathing. Like Thurman said, sales tax is just another cost of doing business that gets passed along.
Mike Hawkins


----------



## dalepres (Mar 20, 2011)

So professional builders are paying sales tax when they buy material? Just trying to understand.


----------



## Ron6519 (Mar 28, 2007)

Depends on the state you live in. In NY,there is no sales tax on capital improvements.
I buy windows(as a contractor) and I don't get charged sales tax.
Consumer purchases are something else. You would need to contact the state to find out.
Ron


----------



## md2lgyk (Jan 6, 2009)

dalepres said:


> So professional builders are paying sales tax when they buy material? Just trying to understand.


I suspect they do not. If their business has a resale certificate, they won't have to pay any sales tax on materials to build something for somebody else. No different than a restaurant not having to pay sales tax on food they buy.

I am not a building contractor, licensed or otherwise, but my wife and I did build our log house by ourselves. At the outset, I went to a local lumber yard and explained that while I wasn't a contractor, I would be buying lots of lumber and other things from them so I wanted contractor pricing and the other attendant perks (free delivery, etc.). They did not charge me sales tax.


----------



## Hurriken (Jul 7, 2008)

Think of it as contributing to the community. That's not actually what's happening but if you think of it that way it may be an easier pill to swallow! :jester:


----------



## DexterII (Jul 14, 2010)

Just to expand on what md2lgyk said, i.e. a contractor who has a resale license not paying tax when they buy materials for a home they are constructiong, I believe that you would find that, in at least most, if not all states, there is another side to the license, in that it is not an exemption, but rather it is a license issued by the state to the contractor, allowing the contractor to collect the tax from the homeowner. The contractor in turn, is required to pay the tax that they collect from the homeowner to the state. One of the reasons that they do this by the way, is that many states tax at the highest markup. In other words, you don't pay tax on a 2x4 at the rate that the logger pays the landowner for permission to cut the tree, or the mill at the rate that they pay the logger, nor even the rate that the lumber yard pays the mill. You pay tax at the rate that the the lumber yard charges you, which is the rate after all of the middlemen have been compensated. This is really not much different than purchasing an automobile, or anything else for that matter. With the exception of certain things, which however are generally handled in the form of a tax credit, rather than a tax exemption, you pay tax on almost anything that you purchase.


----------



## linuxrunner (Oct 18, 2010)

Hurriken said:


> Think of it as contributing to the community. That's not actually what's happening but if you think of it that way it may be an easier pill to swallow! :jester:


:laughing: Subtle and well put! :thumbup:


----------



## HarknessConst (Dec 10, 2010)

What State are you in?


----------



## rjniles (Feb 5, 2007)

I have bought 3 new houses over the years (2 in Connecticut and 1 in South Carolina). I did not pay sales tax on the purchase price, the builder paid sales tax on the materials he purchased and that was part of the contract price. I build 1 house in Mass., I paid the sales tax as I bought the materials. I have purchased several resale houses in CT and SC, never paid sales tax on any of them.


----------



## dalepres (Mar 20, 2011)

HarknessConst, I'm in Oklahoma.

It sounds like someone always pays sales tax on the build/sale of a new house. If so, then I guess I'm not too screwed by paying taxes at the lumber yard. I guess when you buy a not-new house you don't pay but a new house someone pays. Taxes... someone always pays.


----------



## HarknessConst (Dec 10, 2010)

Dale,

You're correct. When I use my resale card it's because I am building for a client, the tax is applied to their final bill as I have to charge tax on mark-up and labor also.

When I am building a home for spec I pay the sales tax on materials and subcontractors, then (in Washington) I pay 1.78% excise on the total sales price of the home.


----------



## WirelessG (Mar 22, 2009)

Typically the "end user" pays the sales tax. If you bought a house from a builder and he doesn't list the sales tax, then you just don't know about it, but it's in there (similar to the tax on gasoline). If you build the house yourself, you can claim the sales tax on your state return, which can mean a substantial amount back from the state. However, when you go to sell the house, your exposure to capital gains tax (which doesn't/won't apply to most of us) is calculated as the difference between the current sales price less the original cost excluding the sales tax.


----------



## dalepres (Mar 20, 2011)

Thanks, Harkness and Wireless. This is good information and answers my question.


----------



## Red Squirrel (Jun 29, 2009)

Yeah you do end up paying sales tax twice. One for the materials (the builder needs to make a living afterall and will pass the cost down) and then when you buy it! Nevermind, when you sell it, the buyer will have to pay taxes again! The goverment has a license to steal. Don't complain too loud though or they'll tax you for complaining about taxes!


----------



## WirelessG (Mar 22, 2009)

Red Squirrel said:


> Yeah you do end up paying sales tax twice. One for the materials (the builder needs to make a living afterall and will pass the cost down) and then when you buy it! Nevermind, when you sell it, the buyer will have to pay taxes again! The goverment has a license to steal. Don't complain too loud though or they'll tax you for complaining about taxes!


You don't get taxed twice. I was referring to two specific cases. Either you build it yourself and you pay the taxes as you purchase materials or you pay taxes to your builder through construction draws. If you were to get taxed twice, the price of a house would be outrageous (although some prices already are).

The US government has looked at (and may implement) a Value Added Tax (or VAT), which would essentially tax each step in the production and sale of a product or service. The tax percentage is quite low (a couple percent), which it has to be since every time a product is refined, the tax is applied. So, you mine copper - the mining operation is taxed. The copper is sent to a mill for refining - the refining gets taxed. The mill send the copper to wire shop - the wire making is taxed. The wire hits the hardware store - the sale of the wire gets taxed. 

Politicians seem to like the VAT because a small increase in the level of the VAT can result in a big change in collected revenue. But what is the difference whether you pay a little bit of tax with each step one big tax at the end step? Nothing. I think politicians think it gives them cover because they can say that a change in the VAT is very small and they think nobody will call them out on it.


----------

