Citrin Cooperman partners Eugene Ruvere and Thomas Walsh discussed state and local tax issues at CFMAs Ocean State Chapter meeting in April 2017.

1. STATE AND LOCAL TAX DISCUSSION
CFMA - Ocean State Chapter
Presented by Eugene Ruvere and Thomas Walsh
April 21, 2017

2. Summary of Issues
• Nexus
• Apportionment
• Taxability of Construction Services by State
• Sales and Use Tax Issues by State
• Voluntary Disclosure
• Sales Tax Audit Issues
• Sales Taxability and Refund Opportunities
• Unclaimed Property
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3. Nexus
• Sales Tax
–Physical Presence (Quill case)
–Affiliate nexus
• Common control and ownership
• Similar products being sold
• Providing an in-state service
• Income and Business Activity Tax
–Telecommuting employee (Telebright)
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4. Apportionment
• Single sales factor (CT, ME, RI)
– Note that RI uses an evenly weighted three
factor formula for pass-through entities
• Three-factor formula with double weighted
sales (MA, NH, VT)
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5. Contract Design
1. Lump Sum/Fixed Fee Contracts – single price for total work on a
construction project.
2. Cost-Plus Contract – provides for reimbursement of allowable or
otherwise defined costs incurred plus a fee representing profit.
Contractor usually needs to use best effort to accomplish work
within the specified period of time and the allotted budget.
3. Time and Material Contract – contractor is paid on the basis of labor
hours at a fixed hourly rate (covering cost of direct labor, indirect
expenses and profit) plus the cost of materials and other expenses.
Compensates the contractor performance on the basis of effort
expended in fulfilling the contract with a guaranteed maximum cost.
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6. Taxability of Services in CT, RI, VT, and MA
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Service CT RI VT MA
HVAC Installation Yes¹ No No No
Prime Contractor Yes¹ No No No
Labor charges for repairs Yes¹ No No No
Repairs – charges for
materials and supplies
No Yes Yes Yes
1. Only if performed on existing commercial property.

7. Invoicing In General – Exempt Projects
• Sales tax should be paid and/or use tax
accrued by the contractor on the cost of
materials unless a specific exemption applies,
e.g., government contract.
• Sales tax should not be charged to the
customer.
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8. Invoicing In General – Taxable Projects
1.Lump Sum – Contractor pays sales tax on
materials. No tax charged to customer.
2.Cost Plus – Contractor should pay sales tax on the
cost of materials. No tax charged to customer.
3.Time and Materials – Some states follow the
general rule, others allow purchases for resale
with tax charged on materials to the end
customer.
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9. Vermont
• Follows the general rule.
• Capital Improvements
– Contractors who construct, repair, alter or remodel real
property should not charge sales tax on contractual
services.
– However, contractors must pay sales tax on materials and
supplies essential to fulfilling the contract or if purchased
without the payment of sales tax, remit use tax to the
State.
• Personal Property
– E.g.: Installation of appliances - Subject to sales tax.
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10. Vermont (cont.)
• Exempt Properties
– No sales tax due on building materials and
supplies used in construction, reconstruction,
alteration, remodeling or repair of any
building or structure of an exempt property.
• Effective, July 1, 2016 manufacturers have the
option to elect to be treated as a retailer rather
than a contractor (use of resale certificates
allowed)
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11. Rhode Island
• Follows the general rule.
• Contractors who fabricate products/articles for use on a
job are not considered manufacturers and are not
eligible for the manufacturing exemption.
• Nonresident Contractors: 3% must be withheld on all
contract payments to nonresidents contractors to
secure payment of any sales/use tax that may be due in
carrying out the contract.
• Rebuild Rhode Island Credit: Eligible projects may
receive an exemption from sales and use tax for certain
purchases of personal property.
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12. Massachusetts
• Follows the general rule.
• Non-resident contractor requirements:
1. Deposit with the Dept. 6.25% of the total amount
payable under the contract, or
2. File with the Dept. a guarantee bond in the same
sum, to secure the payment of tax on TPP.
3. Contractor must also obtain from the Department
a certificate (in duplicate) on cash deposit or bond
filed.
• Exemptions from sales tax (government contracts).
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13. Connecticut
• Contractor services are generally taxable.
• Exemption Properties
– Government and non-profits
– New construction/Owner Occupied
• Direct Payment Permits – Form CERT-133
• Contractors must pay tax on the purchase or rental
of any equipment, tools or supplies used during a
contract, even if the contract is exempt.
• Machinery Rental Surcharge – 1.5%
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14. Voluntary Disclosure
• After compliance issues have been identified, one can choose
to:
– Play audit roulette and disregard;
– File going forward, but not for back years; or
– Attempt to “come clean” to the state in exchange for
various benefits including—
• Shortened look-back periods for tax reporting and
payment;
• Abatement of penalties imposed and sometimes
interest
• Anonymous process until agreements are to be
executed and tax filings produced
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15. Sales/Use Tax Audits
• Sales
– Focus on matching sales invoices to job cost
expenses
• Fixed Assets
– Review invoices for the entire audit period
• Expenses
– Invoices of specific accounts and within a test
period (ie: a quarter) are reviewed and
extrapolated over the entire audit period
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16. Sales Taxability and Refund Opportunities
• Exempt equipment and services performed
• Software and computer hardware
–Related services
–Delivery method can be controlling
• Resale issues and scope of exemption
• Tax-free zones
• Multiple points of use sourcing
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17. Payroll Considerations
• Withholding Tax Issues
• Unemployment Insurance Issues
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18. Unclaimed Property
• Types of property and intangibles
– Deposit accounts and insurance policies
– Uncashed pay checks
– Unredeemed promotions and gifts
• Identifying claimants and proper holders
• Reporting and compliance
• Dormancy periods – vary by state and property type
• Delaware typically aggressive – (Kelmar)
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19. Conclusion
Questions?
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20. FOCUS ON WHAT COUNTS
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