CONTRACTORS EXCISE TAX

Transcription

1 CONTRACTORS EXCISE TAX

2 The information in this presentation does not cover every aspect of tax, nor does it alter or supersede any state statute or administrative regulation. The information in this presentation does not carry regulatory or statutory authority. All users of this presentation are responsible for keeping informed about changes in tax laws and regulations by reading the Department of Revenue newsletters, press releases, Tax Facts, and other documents published by the Department.

3 WHO NEEDS A CONTRACTORS EXCISE TAX LICENSE? ANYONE: Entering into a contract for construction services listed in Division C of the Standard Industrial Classification Manual of 1987 Engaging in services including construction, building, installation, or repair of a fixture to real property Engaging in repair or remodeling of existing real property or the construction of a new project

4 You must be licensed before starting work. You do not need a license for each construction site. SDCL 5-18B-17 No purchasing agency may award a contract for the construction of any public improvement unless the contractor has a South Dakota contractors excise tax license (CET)

5 WHAT IS EXCISE TAX? 2% tax on gross receipts of all prime contractors engaged in construction services or realty improvement projects 2% tax on gross receipts of all prime and subcontractors engaged in construction services or realty improvement for qualified utility projects No prime contractor is exempt from contractors excise tax.

6 HOW TO DETERMINE IF CONTRACT IS SUBJECT TO CONTRACTORS EXCISE TAX: Is the service listed in the SIC Manual Division C? If not in Division C of the SIC Manual, do the services entail the construction, building, installation, or repair of a fixture to realty? A fixture is: Annexed or attached to real property hardwired or wired direct bolted or affixed to the real property plumbed in (connected direct to water or sewer) Adapted to real property Intended to be permanent

7 PRIME CONTRACTOR: anyone entering into a contract for construction services or realty improvements Any person contracting to provide construction services or make realty improvement who has not been issued a prime contractors exemption certificate is a prime contractor. SUBCONTRACTOR: contracts to perform part, or all, of the construction services or realty improvement for a prime contractor, and receives a prime contractors exemption certificate

8 PRIME Needs CET license Contracts with owner Reports gross receipts, including owner-furnished material Owes sales or use tax on materials if not previously paid Gives prime contractors exemption certificate Pays contractors excise tax SUBCONTRACTOR Needs CET license Contracts with prime or another subcontractor Reports gross receipts, does not include owner-furnished materials Owes sales or use tax on materials the sub supplies Receives prime contractors exemption certificate Doesn t pay CET if has exemption certificate (unless qualified utility project)

9 Subcontractors: Report all receipts as gross receipts on Line 1 of the Contractors Excise Return Deduct as Subcontractor s Receipts on Line 3 of Contractors Excise Return on projects for which they have a Prime Contractors Exemption Certificate Cannot deduct receipts for qualified utility projects Owe sales/use tax on materials they supply

10 PRIME CONTRACTORS EXEMPTION CERTIFICATE Prime contractor s responsibility to issue If subcontractor hires another subcontractor, prime must issue Prime Contractors Exemption Certificate Are not issued to materials suppliers or sales taxable service providers Cannot be issued on qualified utility projects Must show: prime contractors excise tax license number project location project description

11 Blanket certificates cannot be issued must list specific project Certificates may not be issued by: US Government State of SD Any state, public, or municipal corporation Owner of a project unless owner is a prime contractor building or remodeling with the intention of selling the property or building property to lease Only Prime Contractors can issue Exemption Certificates

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13 When Is Excise Tax Due? Cash: when payment/draw received Accrual: when the sale is recorded, whether or not payment has been received Use Tax: due at the time the items or services are purchased and when the owner-furnished material is received

14 BID FACTOR: 2.041% Online bid calculator can be found at Or and click on the Contractor s Excise Tax tab Only use this factor to prepare a bid. A straight 2% is used when calculating tax due on the excise tax return

15 Invoice Example: Material $10, (Includes 6% sales tax paid at time of purchase) Labor $ 5, Miscellaneous $ 1, (Includes permits, inspections, etc.) Subtotal $16, Excise Tax x $ Total Invoice $16, Return Example: Excise Tax Due: Gross Receipts $16, x 2% Excise Tax Due $ If bid were figured without using the bid factor: Subtotal $16,500 Excise Tax X 2% $

16 Gross Receipts Include: Labor Sales or Use tax on materials Excise tax Sweat equity Indirect payments Penalties, Liquidated damages Awards or Bonuses Barter transactions Retainage Building permits, Fees Owner-furnished materials Draws on loans

17 No deductions for: Subcontractors Cost of services or labor purchased Taxes Expenses or losses

18 OWNER-FURNISHED MATERIALS (OFM) Supplied by owner Prime owes CET on value, except for qualified utility projects (fair market value includes sales or use tax on the material) State and municipal tax due on cost of material if no documentation showing sales or use tax was paid Value is include in excise tax calculation Report on Line 2 of tax return during reporting period material is furnished for contractor s use Contractors are considered users/consumers of construction supplies.

19 EXCISE TAX ON OFM Owner supplies $500 of materials to contractor (tax-paid) Labor $ 500 OFM $ 500 Total Taxable $1,000 Excise Tax Rate x 2.041% Excise Tax Due $ Total Invoice $ EXCISE TAX CALCULATIONS GROSS TAXABLE RATE TAX DUE 1.Gross Receipts $ Owner-Furnished Materials $ Deductions (Subcontractors Receipts Out-of-state) 4.Special Jurisdiction Receipts (Detail in city Section) 5.Net State Excise Taxable (Line 1 plus Line 2, minus Line 3, minus Line 4 $1, % $ Net Sales and/or Use Taxable 7.Total State Tax Due (Line 5 plus Line 6) $20.41

20 SALES AND USE TAX Contractors are responsible for paying sales or use tax on all purchases of products or services, regardless of who owns the materials. This includes: Materials installed in construction projects All equipment, tools, and supplies used by the contractor 64:09:01:16 General contractors are liable for use tax on all items of tangible personal property used, stored or consumed in the performance of their contract, including those portions of the contract performed by subcontractors.

21 State sales and use tax applies if supplier does not charge applicable sales tax, based on where the contractor receives the product Use tax is reported on the excise tax return when the contractor receives the product Picks up at store, state and city tax applies at store s location Has delivered, state and city tax applies where delivered Use tax applies to cost of material, including delivery and handling charges If the contractor later uses the material in a city that imposes a higher tax rate, the contractor must pay the additional city use tax in the reporting period the contractor uses the material.

22 Invoice Calculations Labor $ 5, OFM $10, Use Tax $ ($10,000 x 6%) Subtotal $15, Excise Tax x 2.041% $ Total $15, Include on Invoice $5, $ $ $5, Use Tax collected is part of the gross receipts.

23 EXCISE TAX GROSS TAXABLE RATE TAX DUE 1.Gross Receipts $5, Owner-Furnished Materials $10, Deductions (Subcontractors Receipts Out-of-state 4.Special Jurisdiction Receipts (Detail in City Section) 5.Net State Excise Taxable (Line1 plus Line 2, minus Line 3, minus Line 4 $15, % $ Net Sales and/or Use Taxable $10, % $ Total State Tax Due (Line 5 plus Line 6) $ City & Special Jurisdiction Tax Calculation Detail: 9. City/Special Jurisdiction Name Code Taxable Rate Tax Due 10.Sioux Falls $10, $ Total City/Special Jurisdiction Tax (Add Lines 10 through 21) $ Total Tax Due (Line 7 plus Line 22) $ Penalty/Interest 25.Adjustment (Previous Credit/Balance Due) 26.Total Due (Line 23 plus Line 24 plus Line 25) $ Amount Remitted $918.37

24 OUT-OF-STATE PURCHASES Material and equipment delivered into South Dakota are subject to SD sales or use tax, even if supplier charges another state s sales tax. Credit is allowed for tax properly paid to another state (reciprocity). If less tax is charged in another state than applies in SD, contractor owes difference in use tax to SD Equipment: New equipment purchased for use in SD subject to SD sales or use tax Used equipment brought into state by contractor who originally purchased it for use in another state less than 7 years old, use tax on fair market value of equipment

25 MATERIALS REMOVED FROM INVENTORY Use tax due when material is taken out of tax unpaid inventory to use on construction project based on where material is taken out of inventory Additional use tax is due if material is removed from inventory in one city and is used, stored, or consumed in another city that imposes a higher city tax Use tax must be reported on Contractor s Excise Tax return

26 FABRICATION Contractors may fabricate materials such as vents or ductwork. Fabrication costs excluded from fair market value of tangible personal property if fabrication done by contactor s employees Tax due on raw materials cost only If third party hired by contractor to do fabrication, sale/use tax due on entire cost including fabrication labor

27 SERVICES Sales and use tax applies to all services unless state law specifically exempts the service. Examples of sales and use taxable services: Engineering Computer services Surveying & staking Testing Carpet laying Inspecting Construction management Equipment rental Accounting Business consulting Architectural planning Rock crushing Locksmiths Snow removal Concrete pumping

28 The service provider is responsible for state and municipal tax on services Services performed on tangible personal property: where property is delivered to customer (i.e., repairs, rag cleaning, fabrication, millwork finishing) Services to real property: property location where service is performed ( i.e. carpet installation, surveying or staking, pest control, lawn care, security services) Other services subject to sales tax where customer receives the service (i.e. consulting, architecture, engineering, legal, third party administrative, accounting) Use tax is based on where the product or service is used.

29 EQUIPMENT LEASE OR RENTAL Without an operator: sales tax applies First payment taxed where possession is taken Subsequent payments taxed at primary location With an operator: tax depends on use Excise taxable situations Sales taxable situations

30 CONSTRUCTION MANAGERS Sales Taxable Service: Provides management/consulting services Oversees or supervises construction project Contract doesn t include construction Has no contracts with contractors does not PAY contractors Excise Taxable Service: Contracts with owner to build a building or other construction Becomes a primer contractor Is user/consumer of services such as cleanup crew, port-a-potty, dumpster rental Hires and Pays contractors working on the project Issues prime contractors exemption certificates to subs

31 EXAMPLES OF REALTY IMPROVEMENTS Heating/cooling Plumbing Concrete Remodeling Electrical Carpentry Painting/wallpapering

32 HEATING/AIR CONDITIONING Excise Taxable: Installation of heating, central air, ventilation units Repair work Sales Taxable: Cleaning Calibration Changing filters Duct cleaning Smoke/gas testing Maintenance agreements Adding freon or recharging AC units Sale, installation or repair to window air conditioning units

33 REPAIR VS MAINTENANCE CET Includes replacement parts Fixes parts SALES TAX Does not include replacement of parts Does not fix parts Maintenance work, even if installation of equipment was subject to CET If installation is subject to CET, any repair is subject to CET.

34 WARRANTIES: Tax according to what the warranty or maintenance contract covers Charges for warranties or contracts that include repair to real property are subject to CET TYPES: Manufacturer s Warranties sold by contractors Service or maintenance contracts

35 MANUFACTURER S WARRANTIES Parts and services covered are NOT subject to sales or use tax. If the manufacturer provides replacement materials covered by warranty with no charge to the contractor or customer, there is no sales or use tax on the parts. Parts are not included as OFM. The contractor owes CET on the total gross receipts billed to the manufacturer.

36 WARRANTIES SOLD BY CONTRACTORS Warranty charge subject to CET No tax on labor for services covered under warranty if no charge made to customer Use tax due on parts used Charges made to customer for labor or parts subject to sales tax or CET according to work done Parts covered by manufacturer s warranty not subject to sales or use tax; all other parts are taxable

37 SERVICE OR MAINTENANCE CONTRACTS Contracts to clean or calibrate that do not include installation or repair to real property are subject to sales tax. Parts and labor used to complete the service contract work are not subject to sales tax. Any charges to the customer for deductibles or items NOT covered under the contract are subject to tax.

38 LANDSCAPING LAWNCARE SALES TAX Landscape design Spraying and fertilizing Mowing Ornamental shrub and tree planting and pruning Trimming and removal Utility line tree trimming Seeding or laying sod Putting down rock CET Laying bricks/retaining walls Installation of underground sprinklers Installation of fountains and ponds that contain heaters or flowing water Stump removal in fields Sidewalks Shelterbelt clearing Cedar tree removal from land

39 CARPET AND FLOOR LAYING Most installation of floor covering is sales taxable. Examples: Carpet laying or removal Laying, scraping, finishing, and refinishing parquet and hardwood flooring Duraceramic and durastone Resilient floor laying Linoleum installation Vinyl floor tile/sheet installation Asphalt tile installation Fireproof flooring Wood flooring CET Ceramic tile Terrazzo Marble Epoxy flooring

40 GRAVEL Sales Taxable: Gravel sales Stockpiling Dumping on the road Gravel crushing Gravel spreading (no blading) Excise Taxable: Blading or grading of road after gravel has been spread Road maintenance Road building The contractor will owe sales or use tax on purchases of rock or crushing services.

41 SNOW REMOVAL Gross receipts from snow removal are subject to sales tax. When snow removal is for a political subdivision, such as a city or county, the receipts are not taxable.

42 HIGHWAY CONTRACTORS Licenses required for all prime and subcontractors who perform highway construction work on public road (including snow removal and blading): Contractor s Excise Tax Highway Contractor s (receive from the Division of Motor Vehicles at Licenses must be obtained before beginning work in South Dakota.

43 Excise Taxable: Landscaping Mulching Traffic control, flagging Striping Seeding, sodding Erosion control Signing Pilot car operation Sales Taxable: Gravel crushing Architect Surveying Gravel sales and hauling Engineering Snow removal

44 QUALIFYING UTILITIES (ALTERNATE CONTRACTORS EXCISE TAX) Electric, heating, water and gas companies Railroads Rural electric companies Telephone companies, including rural telephone Rural water supply companies Rural water systems Municipal telephone Payment must be received directly from the utility to be considered a qualified utility project.

45 Qualified Utility Project (tax applies under 10-46B) PRIME Owes 2% excise tax on gross receipts Do not include value of OFM in gross receipts Owes 4% state and applicable municipal use tax on OFM Owes 4% state and applicable municipal use tax on material Cannot give Prime Contractor Exemption Certificates Cannot deduct amounts paid to others from gross receipts SUBCONTRACTOR Owe 2% excise tax on gross receipts Owe 4% state and applicable municipal sales or use tax on material Cannot accept Prime Contractor Exemption Certificate

46 PORTABLE BUILDINGS Lawn sheds and portable buildings: subject to sales tax Shed sold to utility companies: subject to sales tax unless sold with installation on a foundation Fully wired sheds, such as telephone switching stations: Subject to sales tax unless sold with installation on a foundation

47 SCHOOL-BUILT HOMES If built on blocks in school yard by students is subject to sales tax on the selling price when sold Materials and labor can be purchased exempt from tax because the school is an exempt entity If built on owner s site, total contract price subject to contractors excise tax

48 TRIBAL EXCISE TAX Contractors excise tax collected when working on a reservation with an agreement Same rate as state excise tax 2% Instead of, not in addition to, state excise tax Applied same as state excise tax subject to same laws Reported on state excise tax return Reported in Special Jurisdiction section on state tax return using the code assigned to that Special Jurisdiction

49 FILING AND PAYING RETURNS Electronic filing is the preferred method (EPath) To access EPath: SD Quest Users: after July 23, 2013 must create EPath account to continue to file and pay electronically Questions or assistance: (Option 1) or to

50 Benefits: Available 24/7 One EPath account may be used for all same owner licenses (with same FEIN) Allows for additional user access to all or specific accounts Multiple payment options (ACH Debit, ACH Credit, pay at later time or submit check) Automatically save for later access and editing before submitting System does all calculations Amend returns online Review file and pay history Change password, security questions, and addresses at any time View pending payments and make changes to a payment up to date payment is scheduled Use a bank account for one-time payment or save account information for future payments

51 For additional information on sales and use tax or questions concerning taxes: Call toll-free: Visit our website: Visit or call your local Department of Revenue office

52 DEPARTMENT OF REVENUE FIELD OFFICES Aberdeen: 419 Moccasin Dr., Aberdeen, SD 57401, Mitchell: 417 N. Main, Suite 112, P.O. Box 1103, Mitchell, SD 57301, Rapid City: 4447 S. Canyon Road, Suite 6, Rapid City, SD 57702, Sioux Falls: 300 S. Sycamore Ave., Suite 102, Sioux Falls, SD 57110, Watertown: 715 South Maple, Watertown, SD 57201, Yankton: 1900 Summit St., Yankton, SD 57078,

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