This guide is intended as a general resource. For additional details reference Iowa Administrative Rules Chapter 701-219.
Anyone who provides labor and materials to build a structure is considered a construction contractor for that job, even if his or her usual occupation or profession is something else, such as a handyman.
Contractor includes a general contractor, subcontractor, or builder. The contractor can be an individual, corporation, partnership, or other entity.
A sponsor is the second party of the contract.
A construction contract is an agreement between a contractor and a sponsor to provide labor and materials to build a structure.
A construction contract always involves changing tangible, personal, or “movable” property into real estate; for example, a change of concrete block and mortar into a foundation.
Types of Contracts
Types of contracts include, but are not limited to, lump sum contracts, cost plus contracts, time and material contracts, unit price contracts, guaranteed maximum or upset price contracts, construction management contracts, design build contracts, and turnkey contracts.
For a list of activities and items that could fall within the meaning of a construction contract or are generally associated with a construction contract, see Appendix C.
Building Materials, Supplies and Equipment
See Appendix B.
Types of Construction Contractors in Iowa
How a person is classified is the basis for determining many tax obligations. It can be difficult for a person starting a business to determine if that business will be engaged in contracting, retailing, a combination of the two, or providing repair services. However, one status must be chosen from the following:
A status should not be changed unless it becomes clear that the business has become another status.
A business begins as a contracting business only. The owner begins to sell construction materials at retail and eventually the majority of the business' income is from these sales. The status changes from contractor to contractor-retailer.
Consumer of building materials and supplies purchased for use in construction contracts
Responsible for paying sales tax at the time the purchases are made or directly to the Department
Materials delivered in Iowa for use in a construction contract are subject to tax. It does not matter if the
materials purchased by a contractor are for use in construction contracts performed in Iowa or outside of Iowa.
Contractors are not allowed to make purchases for resale just because they have a sales tax permit number. Jobs for most nonprofit organizations, including churches, are not exempt. Suppliers should not accept sales tax exemption certificates from contractors, unless a designated exempt entity exemption certificate and authorization letter are provided to a contractor by a designated exempt entity.
A contractor performs new construction.
The contractor must pay tax on materials at the time they are purchased and does not collect any tax from the customer.
A contractor performs a taxable service.
The contractor must pay tax on the materials at the time they are purchased. The contractor collects tax on both the labor and the materials from the customer. Since tax was already paid on the materials when the contractor purchased them, an adjustment can be made on the sales tax return by entering the amount the contractor paid for the materials as an “other” exemption on line 4 of the sales tax return.
A person who is not in the construction business is building his or her own house.
The person must pay sales tax on the purchase price of the materials, supplies, and equipment. Owners are considered final consumers in the same way as contractors.
A contractor-retailer is a business, generally with a store front, that makes frequent retail sales of supplies and materials to the public or other contractors and builds residential or commercial structures.
A contractor-retailer must obtain a tax permit to report sales tax from retail sales and taxable repairs and to pay tax on materials withdrawn from inventory for use in a construction contract.
A contractor who rarely makes sales to individuals or other contractors is not considered a contractor-retailer
and must pay sales tax to suppliers or use tax to the Department on all purchases.
Purchases tax free building materials, supplies and ;equipment placed in its inventory for resale
Provides the supplier with a valid sales tax exemption certificate
Collects sales tax on the selling price when materials, supplies, and equipment are sold without installation
Pays tax to the Department if inventory is removed for use by the business
Pays tax to the supplier on materials not typically placed in inventory, such as wet concrete
Performing a construction contract - does not collect sales tax from the final customer
Performing a taxable service (repairs) - charges customers sales tax on labor and materials
Does not pay tax on materials withdrawn from inventory for use in construction projects performed outside Iowa
Contractor and Contractor-Retailer Examples
ABC Company operates a retail outlet that sells lumber and other building materials and supplies. ABC is also a contractor that builds residential and commercial structures. Since ABC is a contractor-retailer, it purchases all inventory items for resale. When using materials to fulfill a construction contract, however, ABC will need to pay tax on their cost of the materials. This should be reported as “goods consumed” on line 2 of the sales tax return. Items that are sold by ABC are subject to sales tax at the over-the-counter selling price.
EFG Company is a mechanical contractor and has no retail outlets. EFG rarely sells any of its inventory to
other persons or contractors; therefore, EFG is not considered to be a contractor-retailer. Since EFG is
considered to be a contractor only, it must pay sales tax to its suppliers when it purchases building supplies
and materials. On those rare occasions that EFG sells an item to another person or contractor, EFG must
collect sales tax on the selling price. EFG must have a sales tax permit to report this tax. Since tax was already paid on the item when EFG purchased it, an adjustment can be made on the sales tax return by entering the amount EFG paid for the item as an “other” exemption on line 4 of the sales tax return.
Home Town Construction Company is owned and operated by two individuals in a rural Iowa farming
community. They do not have a retail outlet but they frequently make sales of building materials from their
inventory to local residents. Home Town Construction Company is a contractor-retailer because of the
frequency of the sales and should purchase all inventory for resale. Items that are used in construction
contracts are subject to tax on Home Town’s buying price at the time they are withdrawn from inventory. Items that are sold are subject to tax on the selling price.
Down Home Construction Company is operated by two individuals in a rural Iowa farming community. They do not have a retail outlet and rarely sell building materials from their inventory. Because its sales are rare, Down Home is considered a contractor only and must pay sales tax to its suppliers when making purchases. However, since Down Home makes occasional sales, it must have a sales tax permit to collect and remit the tax on those retail sales.
Intown Home Construction Company places modular homes on slabs or basement foundations, makes electrical, plumbing, and other connections, and otherwise prepares the modular homes for sale as real estate. Intown also has a sales tax permit, maintains an inventory of modular homes for sale, and sells homes from the inventory as tangible personal property to owners who later convert the property to real estate. Intown is a contractor-retailer and is obligated to pay tax when a modular home is withdrawn from inventory for use as material in a construction contract. It must collect the sales tax when the home is sold directly to an owner.
Smith’s Plumbing has a retail store in Davenport, but they also install plumbing fixtures and lines in new construction and remodeling projects. As a contractor-retailer, plumbing supplies that are taken from their inventory for a new home being built in Rock Island, Illinois, are exempt from sales tax because the construction contract is outside of Iowa. However, those supplies may be subject to Illinois use or sales tax.
To determine if your business is strictly repair, see Is the Job a Repair?
If materials and labor are itemized separately on the bill to the customer, businesses that perform only repair jobs:
Do not pay sales tax on purchases of building materials and supplies purchased for resale
If the repair company does not itemize materials and labor on billings, it will:
Pay tax on the materials purchased
Collect tax on the total bill
Sales by Manufacturers
Manufacturers who sell to contractors or other consumers are required to collect tax on the gross receipts.
Manufacturers who make retail sales are required to hold an Iowa sales tax or use tax permit.
Manufacturers of building materials, supplies, and equipment may sell their products and also use their products in construction contracts.
If primarily a manufacturer
Tax is computed on “fabricated” costs. Fabricated costs include both direct and indirect expenses. This includes the cost of all materials, labor, power, transportation to the plant, and other plant expenses such as overhead, but it does not include installation on the job site.
If primarily a contractor
Tax is computed on the cost of raw materials.
A manufacturer performing new construction does not collect sales tax from the final customer.
Taxable Repair Service
A manufacturer performing a taxable repair service may withdraw materials from inventory tax free. Tax is collected from the final customer on the labor and materials.
When tangible personal property is used by a manufacturer in construction contracts outside of Iowa, no Iowa sales or use tax is due.
Taxable services related to construction contracts
Electrical and electronic repair and installation
Excavating and grading
House or building moving
Landscaping, lawn care, and tree trimming and removal
Painting, papering, and interior decorating
Pipe fitting and plumbing
Roof, shingle, and glass repair
Sign construction and installation
Taxable services are exempt when...
...performed on or connected with new construction, reconstruction, alteration, expansion,
or remodeling of buildings or structures
Repair remains taxable
Taxable services performed in repairing tangible personal property and real property remain taxable. Repair of machinery on the job site is taxable.
Services never subject to sales tax
Laying vinyl, wood, and other flooring
See Appendix A.
“Repair” means mend, restore, maintain, replace, or service. A repair restores an existing structure that has been damaged.
When in doubt, a construction contract should be treated as being a taxable repair. If it is later determined that reconstruction rather than repair occurred, the sponsor may apply to the Department for a refund of tax paid.
Examples of taxable repair situations include:
Replacement, repair, or restoration of:
Broken or defective glass / windows
Individual or damaged roof shingles
Defective garage door or garage door opener
Defective kitchen cabinet
Defective tub, shower, or faucet
Defective water heater, furnace, or central air conditioning compressor
Original wiring in a house or building
If it is, the labor is exempt from sales tax. This exemption applies to real property and structures only. It does not apply to tangible personal property.
The contractor is responsible for paying tax to the supplier on materials.; The contractor does not charge tax to the customer on the labor or materials.
Examples of new construction, reconstruction, alteration, expansion, and remodeling activities.
Building a garage or adding a garage to an existing building (new construction)
Adding a redwood deck to an existing structure (new construction)
Replacing a complete roof on an existing structure (reconstruction)
Adding a new room to an existing building (new construction)
Adding a new room by building interior walls (alteration)
Replacing kitchen cabinets that are not defective (alteration or remodeling)
Paneling existing walls (alteration or remodeling)
Laying a new floor over an existing floor (alteration or remodeling)
Rebuilding a structure damaged by flood, fire, or other uncontrollable disaster or casualty (reconstruction)
Building a new wing to an existing building (expansion)
Rearranging the interior structure of a building (remodeling)
Installing a modular or mobile home on a foundation (new construction)
Replacing an entire water heater, water softener, furnace, or central air conditioning unit that is not defective (reconstruction or remodeling)
Sign installation and well-drilling services when performed in connection with new construction
Is the service performed closely with a construction activity?
For example, the service of excavating and grading of land to clear it for construction of a building is exempt because it is done in conjunction with new construction. However, excavating and grading land without the intent of construction is taxable.
Is the service performed at about the same time as the construction activity?
For example, if land is graded to seed a new lawn following construction, the service is exempt from tax. If, however, the lawn does not grow and the land is regraded the following year, the service is taxable because it is not performed in conjunction with new construction.
The physical relationship is considered.
If a building is constructed for machinery, installation of the machinery is exempt. For example, piping services that join two pieces of equipment in separate buildings are exempt if the equipment in either building is installed while new construction, reconstruction, alteration, expansion, or remodeling to the structure is also taking place.
Will the magnitude of the service make it exempt?
The “size” of a job should be considered when deciding if the job is a repair or new construction. For example, replacing damaged or missing shingles on a roof is repair and taxable; recovering an entire roof is construction and exempt.
Is the item being replaced defective?
For example, if a building’s existing furnace is not defective, but the owner of the building has a new, more energy efficient furnace installed, the service is reconstruction or remodeling. However, if the building’s furnace is defective, the replacement of the furnace is a repair.
Is the project a capital improvement?
A contract that qualifies as a capital improvement is not automatically treated as construction. The totality of the project must be considered in making that determination.
If this happens, the contractor must itemize the bill and charge sales tax on repair labor.
A homeowner hires a contractor to add a new room to the existing home. This service is exempt as new construction. However, the home also needs restoration of its original wiring and replacement of a broken window. These are repairs and the labor and materials are taxable.
Designated exempt entities include only the following:
Private nonprofit educational institution in Iowa
Nonprofit private museum in Iowa
Tax-certifying or tax-levying body or governmental subdivision of Iowa, including the state board of regents, state department of human Services, state department of transportation, and recreational lake and water quality districts
Municipally-owned solid waste facility which sells all or part of its processed waste as fuel to a municipally-owned public utility
All divisions, boards, commissions, agencies, or instrumentalities of state, federal, tribal, county, or municipal government which do not have earnings going to the benefit of an equity investor or stockholder
A nonprofit Iowa affiliate of a nonprofit international organization whose primary activity is the promotion of the construction, remodeling, or rehabilitation of one-family or two-family dwellings for low-income families, such as Habitat for Humanity
Rural water districts organized under Iowa Code chapter 357A
An entity that is an instrumentality of a county or municipal government, including an agent of the entity, if the instrumentality or agent was created for the purpose of owning real property located within a reinvestment district established under Iowa Code Chapter 15J. Such entities are entitled to a sales tax exemption on building materials, supplies, or equipment that are completely consumed in the performance of a construction contract to construct a project, which project has been approved by the economic development authority board in accordance with Chapter 15J.
Nonprofit hospitals are NOT designated exempt entities for this purpose.
Designated exempt entities may issue exemption certificates to contractors and subcontractors, allowing them to purchase or withdraw from inventory building materials for the contract free from sales tax.
This special exemption certificate also allows a manufacturer of building materials to consume materials in the performance of a construction contract with a designated exempt entity without owing tax on the fabricated cost of those materials.
These charges are not subject to Iowa sales or use tax if they are separately contracted for or if the charges are separately itemized on the bill.
The new construction exemption does not apply to gambling boats. Gambling boats are tangible personal property, not real property. The builder of the boat is considered a manufacturer, not a contractor.
Tax must be collected on taxable services performed on the boat.
5% use tax on 20% of the installed purchase price
Use tax paid to the manufactured home retailer at the time of sale
Purchaser must provide the retailer with all the information necessary to submit an application for title
The retailer is required to remit the use tax to the county treasurer of the county in which the home is located and also carry out the title application process
Tax has already been paid
When resold, the new owner does not pay the 5% use tax again.
Installed purchase price
“Installed purchase price” is the amount charged by building contractors to convert manufactured housing from tangible personal property to realty. This includes, but is not limited to, amounts charged for installing a foundation and electrical and plumbing hookups. It does not include any amount charged for landscaping in connection with the conversion.
6% sales or use tax, plus local option tax if applicable, on 60% of the purchase price
The circumstances of the sale determine who pays the tax.
A dealer who is not a contractor, subcontractor, or installer may purchase modular homes for resale tax free from a wholesaler or manufacturer. Tax is collected when the home is sold.
A dealer who is also a contractor may purchase modular homes tax free for inventory. The dealer will owe tax on the cost of the home when it is withdrawn from inventory for use in a construction contract.
A contractor must pay the tax to the supplier when purchasing a home for use in a construction contract.
A manufacturer that acts as its own dealer will collect the tax on its sales to customers, unless the customer will be reselling the home.
A manufacturer who installs a modular home for an Iowa customer at a construction site in Iowa owes tax on the fabricated costs.
Sectionalized Housing and Panelized Construction
Sectionalized housing and panelized construction are considered prefabricated structures but not manufactured or modular homes. Sales tax is due as with typical construction projects.
Machinery and equipment that do not become real property (remains tangible personal property after installation) must be purchased for resale by providing the supplier with a valid sales tax exemption certificate. Contractors who sell machinery or equipment that is not exempt from tax must then charge sales tax as part of the contract. The contract must either itemize sales tax separately or state that sales tax is included in the contract price. The contractor must have a sales tax permit.
Construction Contracts with Machinery and Equipment
When a construction contract is mingled with a machinery and equipment sales contract (a mixed contract), the two parts should be separated for sales tax purposes. In these contract situations, the contractor is the consumer of the construction materials and is also a retailer of the machinery and equipment. The contractor is required to pay tax on building materials and collect tax from taxable customers on the machinery and equipment.
Company A contracts with Company B to build a new building and install all of the machinery and equipment. Company B pays its suppliers sales tax on all building materials and supplies. Company B also purchases refrigeration units that will remain tangible personal property after installation. Company B buys these units tax free for resale since they will be resold to Company A; Company B will then charge Company A sales tax on the units.
Distinguishing Machinery and Equipment from Real Property
"Machinery and equipment" includes property that:
Is tangible personal property when it is purchased and remains tangible personal property after installation
Is not permanently annexed to the realty
Can be moved without causing damage or injury to itself or to the structure
Does not in any manner constitute an integral part of a structure
For a list of property that under normal conditions remains tangible personal property after installation, see Appendix D.
Tangible Personal Property that Become Structures
Items that are manufactured as tangible personal property can become structures. The determination is made on an item-by-item basis.
Following is a list of standards used to decide if an item becomes a structure:
Degree of architectural and engineering skills necessary to design and construct the structure
Overall scope of the business and the contractual obligations of the person designing and building the structure
Amount and variety of materials needed to complete the structure, including the identity of materials prior to assembly and the complexity of assembly
Size and weight of the structure
Permanency or degree of annexation of the structure to other real property that would affect its mobility
Cost of building, moving, or dismantling the structure
A farm silo, which is a prefabricated glass-lined structure, is intended to be permanently installed. The silo is 70 feet high and 20 feet around, weighs 30 tons, and is affixed to a concrete foundation weighing 60 tons that is set into the ground for the specific purpose of supporting the silo. The assembly kit includes 105 steel sheets and 7,000 bolts. The silo can be removed without material injury to the realty or to the unit itself at a cost of $7,000. In view of its massive size, the firm and permanent manner in which it is erected on a substantial foundation, its purpose and function, the expense and size of the task, and the difficulty of removal, it is considered a structure and not machinery or equipment.
Sales Tax and Use Tax
Sales or use tax is computed on the actual selling price of the taxable purchase. The rate for sales and use tax is 6%.
When the tax is imposed determines whether it is a sales tax or a use tax. View additional permit requirements.
Sales tax is imposed when property is delivered in Iowa.
Sales tax is applied when taxable goods are delivered and when taxable services are first used, or potentially could be first used. The Iowa seller of the items must obtain a sales tax permit and is primarily responsible for collecting, reporting, and remitting the tax to the Department. In addition, a local option sales tax may apply to sales or services, depending upon where the sale is occurring.
Use tax is imposed when property is purchased for use in Iowa but no Iowa sales tax has been paid.
Two types of use tax are recognized by the State of Iowa: retailer’s use tax and consumer’s use tax. The difference between the two is the person responsible for remitting the tax.
Iowa retailer’s use tax is collected by out-of-state retailers on their sales of goods and taxable services to persons who will use those goods and services in Iowa. If the out-of-state retailer is not required to collect Iowa tax, anyone purchasing goods or taxable services from that retailer for use in Iowa is obligated to pay consumer’s use tax at the rate of 6% when those goods or services arrive in Iowa.
Local Option Sales Tax
In addition to the 6% state sales tax, local jurisdictions may impose a local option sales tax (LOST).
Within a county, some cities may have the local option tax, some may not. Also, the unincorporated area of a county may or may not have the tax. The rate is 1%.
If a contractor receives taxable goods or makes, or potentially could make, first use of taxable services in a local option jurisdiction, the tax must be paid. If a contractor receives taxable goods or makes, or potentially could make, first use of taxable services outside a local option jurisdiction for use inside a jurisdiction, the local option tax of the jurisdiction in which the taxable goods are delivered or where taxable services are first used, or potentially could be first used, is due.
The following are not subject to local option sales tax. In addition, the state rate remains at 5%:
Self-propelled building equipment, pile drivers, motorized scaffolding, or attachments customarily drawn or attached to them, including auxiliary attachments which improve their performance, safety, operation, or efficiency and including replacement parts.
These must be used directly and primarily by contractors, subcontractors, and builders for new construction, reconstruction, alterations, expansion, or remodeling of real property or structures.
When these items are rented to contractors for use in connection with new construction, reconstruction, alteration, expansion, or remodeling, the rental payments are exempt from tax.
Refund of Local Option Tax
If a local option tax is imposed after a contractor enters into a written contract, the contractor must pay the local option tax applicable at the time it purchases building materials. The contractor may then apply for a refund of the additional local option sales tax based on certain conditions.
All of the following conditions must be met before a contractor is eligible to claim a local option tax refund:
The goods, wares, or merchandise is incorporated into an improvement to real estate in fulfillment of a written contract fully executed prior to the date of the imposition of the local option tax. The refund does not apply to equipment transferred in fulfillment of a mixed contract.
The contractor has paid to the Department or to a retailer the full amount of the state and local option tax.
The claim for refund must be filed with the Department within one year from the date the tax is paid. The IA 843 Claim for Refund (pdf) is used for this purpose.
Tax Liability of Subcontractors
A subcontractor who is providing materials and labor on the actual construction of a building or structure has the same tax responsibilities as a general contractor.
Machinery and equipment sold by material suppliers to subcontractors are sold for resale, and the subcontractor must provide the supplier with a valid sales tax exemption certificate. The subcontractor must have a sales tax permit.
A general contractor is not responsible for the tax liabilities of a subcontractor.
Filing Sales and Use Taxes
Iowa contractors who are also retailers must have a sales tax permit.
Out-of-state contractors required to be registered must have a retailer’s use tax permit.
All businesses should keep records for at least three years. Business records of contractor-retailers must clearly show whether or not inventory items taken out of stock were retail sales or used in construction contracts.
All contractors who work in the state of Iowa are required to register with the Iowa Division of Labor Services (515-242-5871) regardless of the size of their jobs before they begin construction work in Iowa. General contractors, prime contractors, and subcontractors are included in this requirement.
An out-of-state contractor may also be required to file a bond, which will be released only after debts owed to the state resulting from covered work are paid.
In addition to registering with the Iowa Department of Revenue for corporation income tax, contractors doing business as a corporation should register with the Iowa Secretary of State, Corporations Division, at 515-281-5204.
The following are exempt from Iowa sales or use tax when they are performed on or in conjunction with new construction, reconstruction, alteration, expansion, or remodeling of a building or structure. In all other circumstances, such as repair work, they are taxable.
Roof, shingle and glass repair
Electrical and electronic repair and installation
Janitorial and building maintenance or cleaning
Excavating and grading
House and building moving
Machine operator services
Oilers and lubricators
Papering and interior decorating
Pipe fitting and plumbing
Rental of machinery/equipment
Termite, bug, roach, and pest eradicators
Tin and sheet metal repair
Tree trimming and removal
General contractor services: If the service is not taxable, list separately on bill
Architect services: Never taxable, list separately on bill
Engineer services: Never taxable, list separately on bill
Repair of machinery used on the job site: Taxable.
The term “building materials” means materials used in construction work and incorporated into real property. It is not limited to materials used in constructing a building. It may also include any type of materials used for improvement of the premises or anything essential to the completion of a building or structure for the use intended. Carpeting is not considered to be a building material.
The term “building supplies” means anything that is furnished for and used directly in the carrying out of the work of an owner, contractor, subcontractor, or builder and is consumed entirely. Such items do not have to enter into and become a physical part of the structure like materials, but they do become as much a part of the structure as the labor performed on it.
The following is a partial list of building materials and supplies:
Central air conditioning
Electric wiring, connections, and switching devices
Floor covering other than carpeting
Modular and mobile homes
Piping, valves, and pipe fittings
Plates and rods to anchor masonry foundations
Power poles, towers, and lines
Wire netting and screen
The term “building equipment” means any vehicle, machine, tool, implement, or other device used by a contractor in erecting structures for others, or reconstructing, altering, expanding, or remodeling property of others that does not become a physical component part of the property upon which work is performed and is not necessarily consumed in the performance of such work.
The contractor must pay sales, use, or excise* tax on any purchases of building equipment but may rent building equipment exempt from tax.
Rental of the following are exempt when directly and primarily used in new construction, reconstruction, alteration, expansion, or remodeling. This list is illustrative, not exclusive.
Self-propelled building equipment (does not include vehicles subject to registration)
Structural concrete forms
Regular and motorized scaffolding
Attachments customarily drawn or attached to the above
Auxiliary attachments which improve the performance, safety, operation, or efficiency of the equipment and replacement parts
Tools, including hand tools
Forms other than structural concrete forms
*Instead of the 6% state sales/use tax (and local option tax where applicable), a 5% state excise tax applies to purchases of the following specific construction machinery and equipment:
Self-propelled building equipment
Auxiliary attachments which improve the performance, safety, operation, or efficiency of the equipment
Replacement parts for the equipment
Carpeting is considered to be tangible personal property, not a building material. When contractors are building spec homes, they are the consumers of carpeting and must pay tax to their suppliers.
Purchasing for resale
Contractors may purchase carpeting for resale and provide the seller with a sales tax exemption certificate. If contractors purchase carpet tax free for resale, they must collect tax from the final consumer.
Contractors must have sales tax permits to purchase carpet tax free for resale.
Carpet installation is exempt from sales tax. However, the bill must be itemized to show that sales tax is being charged on the cost of the carpet only. If the installation charge is not separately itemized, the entire bill is subject to sales tax.
Floor Coverings Other Than Carpeting
Floor coverings other than carpeting are considered to be building materials if they are shaped to fit a particular room and are permanently attached to the floor. When this occurs, they are taxable in the same manner as building materials that are used in the performance of a construction contract.
Sales of linoleum and other types of floor covering other than carpet that are not attached but simply laid on finished floors are subject to tax unless purchased for resale.
The gross receipts from the sale of sod, dirt, trees, shrubbery, bulbs, sand, rock, woodchips, and other similar landscaping materials are subject to sales or use tax when used for landscaping and sold to final consumers. The final consumer means the owner of the land or a general building contractor.
When a landscaping contractor uses materials to fulfill a contract, the landscape contractor is considered the retailer of the landscaping materials and is obligated to collect sales tax on the selling price from the final consumer.
In the following examples, assume that the contractor is a landscaping contractor.
A sodding contractor furnishes and installs 20 yards of sod at $20 per yard for a total of $400. The sodding contractor also charges the customer $24 sales tax (6% x $400).
XYZ Company landscapes a new office building. XYZ furnishes the shrubs at $25 each, white rock for $5 per bag, and woodchips for $4 per bag. Under a separate contract XYZ installs all of the landscaping materials for a fee of $25 per hour. XYZ’s taxable gross receipts include the shrubs, white rock, and woodchips. The labor charge is exempt because the taxable service of landscaping is performed on new construction.
Sales of uncut sod and unexcavated trees, shrubs, and rock are not subject to sales/use tax. They are considered to be the sale of real estate.
The following is a partial list of activities and items that could fall within the meaning of a construction contract or are generally associated with a construction contract. The list is illustrative only and should not be used to distinguish machinery and equipment from real property or structures since those determinations are based upon the facts of each situation.
Ash removal equipment, installed
Automatic sprinkler systems for fire protection
Awnings and venetian blinds that are attached to real property
Burglar alarm and fire alarm fixtures
Caulking materials work
Central air conditioning installation
Coal handling equipment, installed
Conveying systems, installed
Electric conduit work and related items
Electric distribution lines
Electric transmission lines
Floor covering installation, permanent
Furnaces, heating boilers, and heating units
Glass and glazing work
Lumber and carpenter work
Modular home installation onto foundation
Paint booths and spray booths, installed
Passenger and freight elevators
Piping valves and pipe fitting work
Prefabricated cabinets, counters, and lockers, installed
Refrigeration units, central plants installation
Reinforcing mesh work
Sheet metal work
Signs, other than portable
Tile work, ceiling, floor, and walls
Underground gas mains
Underground sewage disposal
Underground water mains
Vault doors and equipment
Wall coping work
Water heater and softener installation
Weather stripping work
Wire net screen work
Wood preserving work
Property which normally remains tangible personal property after installation.
The list is not complete and is for illustrative purposes only.
Furniture, radio and television sets and antennas, washers and dryers, portable lamps, home freezers, portable appliances, and window air conditioning units
Portable items such as casework, tables, counters, cabinets, lockers, athletic and gymnasium equipment, and other related easily movable property attached to the structure
Machinery, equipment, tools, appliances, and materials used exclusively as such by manufacturers, industrial processors, and others performing a processing function with the items
Office, bank, and savings and loan association furniture and equipment, including office machines
Radio, television, and cable television station equipment, but not broadcasting towers
Certain equipment used by restaurants and in institutional kitchens; for instance, dishwashers, stainless steel wall cabinets, stainless steel natural gas stoves, stainless steel natural gas convection ovens, combination ovens, and steamers with stands
Property which normally becomes a part of realty.
The list is not complete and is offered for illustrative purposes only.
Boilers and furnaces for space heating
Built-in household items such as kitchen cabinets, dishwashers, sinks (including faucets), exhaust and ceiling fans, garbage disposals, and incinerators
Buildings and structural and other improvements to buildings, including awnings, canopies, foundations for machinery, floors (including computer room floors), walls, general wiring and lighting facilities, roofs, stairways, stair lifts, sprinkler systems, storm doors and windows, door controls, air curtains, loading platforms, central air conditioning units, building elevators, sanitation and plumbing systems, and heating, cooling, and ventilation systems
Fixed (year-round) wharves and dock
Mobile and modular homes installed on foundations
Improvements to land including patios, retaining walls, roads, walks, bridges, fencing, railway switch tracks, ponds, dams, ditches, wells, underground irrigation systems, drainage, storm and sanitary sewers, and water supply lines for drinking water, sanitary purposes, and fire protection
Planted nursery stock
Residential water heaters, water softeners, intercoms, garage door opening equipment, pneumatic tube systems, and music and sound equipment (except portable equipment)
Safe deposit boxes, drive up and walk up windows, night depository equipment, remote television, auto teller systems, vault doors, and camera security equipment (except portable equipment)
Seating in auditoriums and theaters and theater stage lights (except portable seating and lighting)
Silos and grain storage bins
Storage tanks constructed on the site
Swimming pools (wholly or partially underground, except portable pools)
Truck platform scale foundations
Walk-in cold storage units becoming a component part of a building