Connecticut Sales and Use Taxes for Construction Contractors

1. Connecticut Sales and Use Taxes for Construction Contractors presented by Felicia Hoeniger and Scott Sebastian Robinson & Cole LLP Paul Greenfield Department of Revenue Services CBIA Connecticut Business Tax Conference – June 1, 2012

2. Structure of Connecticut Sales and Use Taxes • The Sales Tax • Imposed on sales of tangible personal property and enumerated services – Retailer liable • The Use Tax • Imposed on use in CT of purchased tangible personal property or enumerated services – Purchaser liable • Nontaxable and exempt sales – Certificates • Removal from Inventory – nonexempt use • Credit for taxes paid

3. Structure of Connecticut Sales and Use Taxes • All gross receipts presumed taxable • Services taxable only if enumerated • Accrual method of accounting • Exceptions • Situs of Taxation • Property Transactions • Temporary Storage Exception – Buy Connecticut Refund • Enumerated services • Environmental Exclusion

4. Contractor as Purchaser of Tangible Personal Property • Contractor is Consumer of Materials and Supplies, not a Retailer • Who is a contractor? – Types of contract • Contractor’s Exempt Purchases • Governments and Exempt Organizations • Manufacturing Machinery and Equipment • Other Exemptions • Use of Certificates

5. Contractor as Purchaser of Tangible Personal Property • Contractor’s Use of Tools and Equipment • Contractor as Independent Contractor • Contractor as Agent • Trade-ins • Safety Apparel • Particular Types of Equipment

6. Contractor may Qualify as Retailer Purchases for Resale Manufacturing and Fabricating – Machinery Purchases Installation Services Repair or Maintenance Services Warranty Contracts Equipment Rental or Service Contract? Out-of-state Contracts Nonresident Contractors Contractor as Retailer

7. Contractor as Service Provider • Taxable Service Categories • New Construction • Renovation vs. new construction • Site improvements • When does Construction Begin and End? • Other Exceptions • Low and Moderate Income Housing • Residential Exception

8. Contractor as Service Provider • Construction Managers • Accounting for Purchases of Services from Subcontractors • Exemptions and Exempt Persons • Specific Services

9. Billing • Tax Base • Materials • Services • General Contractor Purchases Services of Contractor • General contractor issues a resale certificate to subcontractor • General contractor does not issue a resale certificate • Tax held in trust • “Pay When Paid” method for materialmen

10. Audit Considerations • If under audit, documentation may be required to support amount of tax paid by subcontractors (i.e., invoices) • May still incur additional tax due on materials if subcontractor is located out of state • Results in extra • Time spent • Money in wages and taxes

11. Record Keeping • A taxpayer shall maintain all records that are necessary to a determination of correct tax liability under the affected tax law provisions. • Each exemption certificate, whether resale or otherwise, should indicate the time period the acceptor must keep such certificate in his or her records. • A safe practice is to retain all certificates and records until the taxpayer is next audited by the State. • IP 2009(15) states that resale certificates should be kept at leat 6 years.