Sales Tax not Contractor's Bid, but requested at end of job

[Adam Gagne]

Hello,

I've received a few bids from Contractors to rehab a property, and most do not include sales tax.  How is sales tax usually handled with General Contractors?

The reason I ask, is that I was about to choose one Contractor and I asked him if Sales tax is included and then he replied that it would be calculated at the end and added to the final bill. Something doesn't sit right with me, and it feels like they are trying to get a little bonus at the end.  

Could you all provide some insight on how you usually obtain quotes from Contractors and handle sales tax?

I am in Houston Texas and we have a 8.25% sales tax rate in Harris County.

[Sam Bates]

Adam,

In my prior life I was a sales and use tax professional for multiple accounting firms and an energy company. Texas taxes and or exempts residential rehabs depending how the contract is structured.

If the contract is a lump sum contract it is exempt from sales tax to the end user which is you. The contractor is responsible for paying taxes on all materials they purchase and use in the job.

Citation:Tex. Tax Code Ann. sec. 151.0101 Tex. Tax Code Ann. sec. 151.051

If the contract is broken out to include labor and materials then the contractor is correct in charging you sales tax on materials, but cannot charge tax on the labor portion of the contract.

Citation:Tex. Tax Code Ann. sec. 151.0101 Tex. Tax Code Ann. sec. 151.051 Tex. Tax Code Ann. sec. 151.056 Tex. Admin. Code tit. 34, 3.291 Tex. Admin. Code tit. 34, 3.34

I’ve provided different statues and regulations that will provide greater detail of what I mentioned above. If the contract is time and materials and he did not include it in the initial bid I would fight with him and tell him that’s his mistake and for him to eat the tax. I would imagine he did that on purpose to win the bid then tell you later about the taxes due.

If you are concerned about him potentially pocketing the tax below is a link that you can look up the franchise tax status of a business in Texas. This will not provide evidence that the vendor has a sales tax account, but it will show if he is registered with the state and you can call the state and see if they have a sales/use tax account.

https://mycpa.cpa.state.tx.us/coa/