*How the Construction Industry Is Taxed - Some Basics

• 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.

• 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.

• 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.