alert-icon
Only limited material is available in the selected language. All content is available on the global site.
Wolters Kluwer Navigation
  • Solutions Directory
  • Careers
  • Investors

About Wolters Kluwer

Wolters Kluwer is a global provider of professional information, software solutions, and services for clinicians, nurses, accountants, lawyers, and tax, finance, audit, risk, compliance, and regulatory sectors.

About Us
  • About Wolters Kluwer
  • Strategy
  • Our Organization
  • Management
  • Supervisory Board
  • Value Creation
  • Events
Expert Insights
  • All Expert Insights
  • Health
  • Tax & Accounting
  • ESG
  • Finance
  • Compliance
  • Legal
Get Help
  • Contact Us
  • Login
  • View Solution List
  • eShop & Bookstores
  • Media Center
  • News & Press Releases
  • Solutions Directory
  • Careers
  • Investors
PrimaryNav Button
Wolters Kluwer Logo
Search Wolters Kluwer
    No Suggestion
    WK logo

    Visit our global site, or select a location

    • Americas
    • Europe
    • Asia & Pacific
    Brazil
    Home page:
    • Portuguese
    Canada
    Home page:
    • English
    • French
    Latin America
    Home page:
    • Spanish
    United States
    Home page:
    • English
    Current Page:
    • English
    Belgium
    Home page:
    • Dutch
    • French
    Czech Republic
    Home page:
    • Czech
    Denmark
    Home page:
    • Denmark
    France
    Home page:
    • French
    Germany
    Home page:
    • German
    Hungary
    Home page:
    • Hungarian
    Italy
    Home page:
    • Italian
    Netherlands
    Home page:
    • Dutch
    Norway
    Home page:
    • Norwegian
    Poland
    Home page:
    • Polish
    Portugal
    Home page:
    • Portuguese
    Romania
    Home page:
    • Romanian
    Slovakia
    Home page:
    • Slovak
    Spain
    Home page:
    • Spanish
    Sweden
    Home page:
    • Swedish
    United Kingdom
    Home page:
    • English
    Australia
    Home page:
    • English
    China
    Home page:
    • Simplified Chinese
    Hong Kong
    Home page:
    • English
    India
    Home page:
    • English
    Japan
    Home page:
    • Japanese
    Korea
    Home page:
    • English
    Malaysia
    Home page:
    • English
    New Zealand
    Home page:
    • English
    Philippines
    Home page:
    • English
    Singapore
    Home page:
    • English
    Taiwan
    Home page:
    • English
    Thailand
    Home page:
    • English
    Vietnam
    Home page:
    • English
    Primary Navigation
    • Health

      Trusted clinical technology and evidence-based solutions that drive effective decision-making and outcomes across healthcare. Specialized in clinical effectiveness, learning, research and safety.

      Health Overview
      Solutions
      • UpToDateClinical decision support resource
      • OvidThe world’s most trusted medical research platform
      • LexicompEvidence-based drug referential solutions
      • Sentri7 Clinical SurveillanceTargeting infection prevention, pharmacy and sepsis management
      View All Solutions
      Challenges
      • Optimizing Clinical Workflows
      • Improving Patient Safety
      • Leveraging Clinical Decision Support
      • Reducing Clinical Variation
      View All Challenges
      Expert Insights
      • Virtual Reality in nursing education goes mainstream
      • Clinical decision support tools offer wisdom at clinicians’ fingertips
      • How to improve the management of intracerebral hemorrhage
      • Medical librarians use their expertise in healthcare technology to help improve clinician satisfaction
      View All Expert Insights
    • Tax & Accounting

      Enabling tax and accounting professionals and businesses of all sizes drive productivity, navigate change, and deliver better outcomes. With workflows optimized by technology and guided by deep domain expertise, we help organizations grow, manage, and protect their businesses and their client’s businesses.

      Tax & Accounting Overview
      Solutions
      • Tax & Accounting U.S. HubCentral hub for all U.S. solutions
      • CCH Axcess™ SuiteCloud-based tax preparation and compliance, workflow management and audit solution
      • CCH® ProSystem fx®Integrated tax, accounting and audit, and workflow software tools
      • TaxWise®Tax Preparation Software for Tax Preparers
      View All Solutions
      Expert Insights
      • IRS extends filing and payment deadlines for Mississippi storm victims to July 31
      • FASB improves lease guidance for related party arrangements
      • Growth strategies for building a high-volume tax firm
      • Understanding sales and use tax
      • FASB Seeks comments on proposed improvements to the accounting for certain crypto assets
      • IRS increases cryptocurrency activity scrutiny, gives loss deduction and NFT tax treatment guidance
      • Required minimum distributions are coming due for many; Secure 2.0 Act changed the rules for some
      • 4 steps to communications tax compliance
      View All Expert Insights
    • ESG

      Offering comprehensive tools and expert guidance to companies to help meet regulatory requirements to support sustainability efforts and manage ESG risks efficiently.

      ESG Overview
      Solutions
      • CCH TagetikUnified performance management software
      • OneSumXDiscover our solution for ESG climate risk and regulatory requirements
      • TeamMateSolutions for auditors
      • EnablonSoftware solutions for risk & compliance, engineering & operations, and EHSQ & sustainability
      View All Solutions
      Expert Insights
      • 5-step guide for banks to assess climate risk
      • Road to Corporate Sustainability Reporting Directive (CSRD)
      • Wake-up Call for Banks or Regulators?
      • Are your net zero targets realistic and credible?
      • StateRAMP level security for educational institutions
      • Making the case for ransomware resiliency
      • Producing credible ESG reports: 3 takeaways from our webinar
      • Meet your new team: How ESG will change who you work with
      View All Expert Insights
    • Finance

      Our solutions for regulated financial departments and institutions help customers meet their obligations to external regulators. We specialize in unifying and optimizing processes to deliver a real-time and accurate view of your financial position.

      Finance Overview
      Solutions
      • CCH TagetikUnified performance management software
      • OneSumX for Finance, Risk and Regulatory ReportingIntegrated regulatory compliance and reporting solution suite
      • Lien SolutionsMarket leader in UCC filing, searches, and management
      • eOriginaleOriginal securely digitizes the lending process from the close to the secondary market
      View All Solutions
      Expert Insights
      • Nucleus Research Supply Chain Planning Technology Value Matrix 2023
      • 5-step guide for banks to assess climate risk
      • Bank Failure Communications Checklist: Proactive and Safe Communication with Stakeholders
      • Road to Corporate Sustainability Reporting Directive (CSRD)
      • Wake-up Call for Banks or Regulators?
      • Bank Failures Transition Checklist: Continuing Operations After a Failure
      • 2023 priorities for CFO for xP&A transformation
      • Risk Exposure Checklist: Determining Risk and Obligations in Wake of a Bank Failure
      View All Expert Insights
    • Compliance

      Enabling organizations to ensure adherence with ever-changing regulatory obligations, manage risk, increase efficiency, and produce better business outcomes.

      Compliance Overview
      Solutions
      • OneSumX for Finance, Risk and Regulatory ReportingIntegrated regulatory compliance and reporting solution suite
      • TeamMateSolutions suite for auditors
      • EnablonSoftware solutions for risk & compliance, engineering & operations, and EHSQ & sustainability
      • CT CorporationRegistered agent & business license solutions
      View All Solutions
      Expert Insights
      • CT Expert Insights: What does dissolution mean in business?
      • LLC vs. Inc: Understanding the similarities and differences between an LLC and a corporation
      • Bank Failure Communications Checklist: Proactive and Safe Communication with Stakeholders
      • Wake-up Call for Banks or Regulators?
      • Bank Failures Transition Checklist: Continuing Operations After a Failure
      • Operating a legal department in an economic downturn
      • Healthcare trends and challenges for private equity in 2023
      • Here’s why bowties and barrier management improve risk management
      View All Expert Insights
    • Legal

      Serving legal professionals in law firms, General Counsel offices and corporate legal departments with data-driven decision-making tools. We streamline legal and regulatory research, analysis, and workflows to drive value to organizations, ensuring more transparent, just and safe societies.

      Legal Overview
      Solutions
      • Kluwer ArbitrationThe world's unrivalled and indispensable online resource for international arbitration research
      • Enterprise Legal ManagementMarket-leading legal spend and matter management, AI legal bill review, and analytics solutions
      • Kluwer IP Law The master resource for Intellectual Property rights and registration
      • BizFilings Incorporation services for entrepreneurs.
      View All Solutions
      Expert Insights
      • LLC vs. Inc: Understanding the similarities and differences between an LLC and a corporation
      • Bank Failure Communications Checklist: Proactive and Safe Communication with Stakeholders
      • Bank Failures Transition Checklist: Continuing Operations After a Failure
      • Checklist: Today’s data literate leaders are tomorrow’s legal technology stars
      • Risk Exposure Checklist: Determining Risk and Obligations in Wake of a Bank Failure
      • Guide to Bank Failures: What Happens When a Bank Fails?
      • The lifecycle of an algorithm: How to build AI that actually works
      • Due Diligence Checklist: Proactive Steps for Avoiding a Bank Failure
      View All Expert Insights
    1. Back to Home >
    2. Back to Expert Insights >
    3. Construction Companies Face Unique and Complex Sales and Use...
    Construction Companies Face Unique and Complex Sales and Use Tax Challenges: Common Factors Affecting Tax Liability
    Tax & AccountingJune 14, 2021

    Construction Companies Face Unique and Complex Sales and Use Tax Challenges: Common Factors Affecting Tax Liability

    By: Mark Friedlich, ESQ., CPA

    This is the third in a series of blogs that examine the complex and unique challenges construction companies face in planning for and complying with the sales and use tax obligations they face in the states in which they do business. The increasing risks these businesses face have become much more compelling now that the 45 states (including the District of Columbia) that impose sales and use taxes have formally adopted the Wayfair-economic nexus standard to compel businesses with no physical presence in that state to collect and remit sales and use taxes. The challenges faced by construction businesses is particularly difficult because the construction process itself is inherently complex. There are many moving parts, subject to different rules and regulations in the various states and many localities.

    This blog focuses on some of the most common factors that affect the determination of sales and use tax obligations of construction companies.

    Business Practices and Taxation

    The nature of your business, the types of projects that you engage in, your contractors, and types of customers and contracts all have an impact on the tax consequences of your transactions.Factors that affect the taxability of your transactions include:

    Project category

    • Commercial real estate is defined as buildings or land that is intended to generate a profit from capital gain or rental income.
    • Residential projects are buildings designed primarily to be dwellings.

    Construction Type

    • New construction — Entirely new structures and/or significant extensions to existing structures, whether or not the site was previously occupied.
    • Repair — A restoration to return a structure or property to operating or usable condition.
    • Maintenance — Making or keeping a structure, fixture, or foundation (substrates) in proper condition in a routine, scheduled, or anticipated fashion.

    Construction Contractors — Prime, Subcontractor or U.S. Contractor

    In general, a construction contractor performs construction contracts. Construction contractors can include prime contractors, subcontractors, and United States construction contractors.

    • Prime Contractors — The contractor that has a contract with the owner of a project or job and has the full responsibility for its completion. A prime contractor undertakes tasks to perform a complete contract and may employ (and manage) one or more subcontractors to carry out specific parts of the contract. This contractor may also be known as a main contractor.
    • Subcontractors — A subcontractor is an individual or business contracting to perform part or all of another’s contract. Some prime contractors may do all or most of their work internally without the use of subcontractors; other contractors use subcontractors almost exclusively. In general, most contractors do some of the work themselves and use subcontractors for the rest.
    • United States Construction Contractors — A United States construction contractor is a construction contractor who performs a construction contract for the United States government.

    Customers

    Your customers will also have an impact on the taxability of transactions, and the way you conduct your business can have a positive or negative effect.

    For example, if your customer is exempt from sales and use tax, such as a nonprofit civic or community organization, a good option may be to have your customer purchase the materials that you’re going to use in the construction. Why? Because in some states, exempt organizations are allowed to buy materials and supplies for a construction project tax‑free. If this exemption is allowed to flow through to the material purchased for a construction job they have hired you for, then you may realize a tax savings. However, keep in mind that tax authorities tend to look at these types of transactions very carefully to make sure that the exempt organization or an agent authorized to act on behalf of the exempt organization is making the purchase. Many states do not allow contractors to use an organization’s exemption unless the contractor is the exempt organization’s authorized agent. While the distinction of who can purchase the supplies and materials may seem trivial, states use it as a check to prevent abuse of the organization’s exempt status. There are also important distinctions between government contracts and private sector projects. And, not all governments are the same. In the same way, there are

    important distinctions between state, federal and local contracts, especially when it comes to exemptions.

    Sales and Use Tax Implications

    Usually, the subcontractor becomes the contractor and the contractor becomes the customer. Each subcontractor has a contract that governs the subcontractor’s tax responsibilities. Under most circumstances, subcontractors may not accept a resale certificate from a prime contractor for fixtures that the subcontractor furnishes and installs. If the fixtures are furnished and installed by a subcontractor, the subcontractor is the retailer and the prime contractor is the consumer. As a result, no additional tax is due under the prime contractor’s contract with the real property.

    Often, subcontractors pose a record keeping risk for the contractor. Invoices from subcontractors may lead to problems during an audit. Invoices from subcontractors need to be accurate, provide proper descriptions and have an adequate breakdown of all the items that were applied to and billed to each invoice. In addition, invoices that indicate “sales tax included” should specify the taxes that are included and the amounts.

    Mark Friedlich
    Mark Friedlich, ESQ., CPA
    Vice President of US Affairs for Wolters Kluwer Tax & Accounting
    Mark Friedlich, a CPA & tax lawyer, is the Vice President of US Affairs for Wolters Kluwer Tax & Accounting. He is a member of the U.S. Senate Finance Committee’s Chief Tax Counsel’s Advisory Board, advisor to 14 state taxing authorities, and has been a member of the American Bar Association’s Tax Section and AICPA’s Tax Section leadership teams. Prior to joining Wolters Kluwer he was a COO and Principal at PwC.

     

    Explore related topics
    Expert insightsSales Tax
    Corporate Tax & Accounting Solutions

    Solutions that fit your business model, reduce risk, assure compliance and provide actionable data to grow your business.

     

     

    Learn More
    How we help
    Sales & Use Tax Solutions
    Corporate Tax Solutions
    Tax & Accounting Research

    Related insights

    Construction Companies Face Unique Sales and Use Tax Challenges: Projects Complexity Issues to Consider
    Construction Companies Face Unique Sales and Use Tax Challenges: Projects Complexity Issues to Consider Missouri Set to Become Last State to Require Remote/Online Sellers to Collect and Remit Sales Tax Sales and Use Tax Audits: Best Practices for Protecting and Preparing Your Manufacturing Business

    Related Insights

    • IRS extends filing and payment deadlines for Mississippi storm victims to July 31
      Article
      Tax & Accounting
      March 28, 2023
      IRS extends filing and payment deadlines for Mississippi storm victims to July 31
      IRS announced that Mississippi taxpayers in Carroll, Humphreys, Monroe, and Sharkey counties have extended filing and payment deadlines.
      Learn More
    • FASB improves lease guidance for related party arrangements
      Article
      Tax & Accounting
      March 27, 2023
      FASB improves lease guidance for related party arrangements
      The FASB published a proposed Accounting Standards Update (ASU) intended to improve the guidance for applying Topic 842 to arrangements between entities under common control.
      Learn More
    • Growth strategies for building a high-volume tax firm
      Article
      Tax & Accounting
      March 24, 2023
      Growth strategies for building a high-volume tax firm
      While not all firms will achieve growth through higher volume, many firms are successfully growing by completing more returns in less time.
      Learn More
    • FASB Seeks comments on proposed improvements to the accounting for certain crypto assets
      Article
      Tax & Accounting
      March 23, 2023
      FASB Seeks comments on proposed improvements to the accounting for certain crypto assets
      The FASB published a proposed Accounting Standards Update (ASU) intended to improve the accounting for and disclosure of certain crypto assets.
      Learn More
    Footer Navigation
    • About Wolters Kluwer
    • Strategy
    • Our Organization
    • Management
    • Supervisory Board
    • Value Creation
    • News & Press Releases
    • Events
    • Solutions Directory
    • Health
    • Tax & Accounting
    • ESG
    • Finance
    • Compliance
    • Legal
    • Expert Insights
    • Careers
    • Investors
    • Sitemap
    • Site Owner
    Follow Wolters Kluwer US
    • Facebook
    • Twitter
    • LinkedIn
    • Instagram
    • YouTube
    Wolters Kluwer Logo

    When you have to be right

    • Terms of Use
    • Privacy & Cookies

    © 2023 Wolters Kluwer N.V. and/or its subsidiaries. All rights reserved.

    Back To Top