Connecticut Sales and Use Taxes for Construction Contractors presented by Jack Shaughnessy and Scott Sebastian Robinson & Cole LLP Paul Greenfield Department of Revenue Services CBIA Connecticut Business Tax Conference – May 20, 2011

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

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

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

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

Contractor as Retailer 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

Taxable Service Categories New Construction –Renovation vs. new construction –Site improvements –When does Construction Begin and End? Other Exceptions –Environmental Services [Repealed. eff. 7/1/2011] –Low and Moderate Income Housing –Residential Exception Contractor as Service Provider

Construction Managers Accounting for Purchases of Services from Subcontractors Exemptions and Exempt Persons Specific Services

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

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

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.