How the Construction Industry Is Taxed - Some Basics

2. • Adam Greene, CPA, is a partner in
Greene & Company, LLP, of Melville,
NY. His primary duties include tax
preparation and client relations. Adam
Greene has supplied the construction
industry with financial services for well
over two decades.

3. • Most states do not tax construction
services. However, sales tax frequently
applies to supplies they purchase. The
construction industry is made up of
various businesses that build or
generate improvements to land,
homes, and other buildings. These
businesses are viewed under tax law as
consumers of materials and supplies;
they generally must pay use or sales
tax when these are purchased. Tax is
usually not levied when finished
construction is sold. This provides a
potential advantage, as markups on
materials, labor, and supplies are not
taxed.

4. • Certain states, on the other hand, view
contractors as resellers; the materials
purchased are treated as only for
resale. These states do not require
contractors to pay sales tax when they
buy materials. Furthermore, many
states that do require contractors to
pay sales tax on materials offer
exemptions. Qualification for such
exemptions is determined by the type
of contract, as well as by who the
client is; for example, government
agencies or nonprofit organizations.