Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 219 - Sales and Use Tax on Construction Activities › Rule 701-219.4 - Contractors, Subcontractors, or Builders Who Are Retailers

Current through Register Vol. 47, No. 3, July 24, 2024
In some instances, contractors, subcontractors, and builders
				  are in a dual business that includes reselling to the general public on a
				  recurring over-the-counter basis the same type of building materials and
				  supplies that are used by the contractors, subcontractors, and builders in
				  their own construction work. A person operating in such a manner is referred to
				  in this chapter as a contractor-retailer.
(1)
Determination of
				contractor-retailer or contractor.
Any person who is engaged in the
				performance of construction contracts or contracts for reconstruction,
				alteration, expansion, or remodeling and who also sells building materials or
				other items at retail is obligated to examine the person's business and
				determine if it is that of a contractor or a contractor-retailer. Subrule
				219.4(5) provides examples of entities that qualify as contractor-retailers or
				contractors and their tax obligations.
(2)
Taxability of sales by
				contractor-retailers.
A sale by a contractor-retailer of building
				materials, supplies, or equipment to owners is a retail sale and subject to
				sales tax. Purchases by contractors, subcontractors, or builders of building
				materials, supplies, or equipment to be used in the performance of a
				construction contract or a contract for reconstruction, alteration, expansion,
				or remodeling are also retail sales and subject to sales tax. Contractors,
				subcontractors, or builders who purchase building materials, supplies, or
				equipment to be used in the performance of a job, which does not rise to the
				level of a new construction, reconstruction, alteration, expansion, or
				remodeling, are acting as retailers and not as contractors and must charge and
				collect from their customers sales tax on the sales price charged for
				materials, supplies, or equipment used in completing the job and on the sales
				price charged for any taxable service labor used in completing the job or on
				the entire charge, if materials and labor are not separately
				invoiced.
(3)
Withdrawals
				from inventory.
When a contractor-retailer withdraws from inventory
				building materials, supplies, or equipment to be used in a construction
				contract performed by the contractor-retailer or in a contract for
				reconstruction, alteration, expansion, or remodeling performed by the
				contractorretailer, the contractor-retailer must pay use tax on the cost of the
				materials, supplies, or equipment withdrawn from inventory. When a
				contractor-retailer does repair work, the contractor-retailer is acting as a
				retailer and not a contractor and must collect tax on the sales price charged
				for materials used in the repair and on the sales price charged for any labor
				used in the repair, which is a taxable service, or on the entire charge if
				materials and labor are not separately invoiced.
(4)
Characteristics of
				contractor-retailer.
The following is a list of the characteristics of
				the usual contractor-retailer:
a. A
				contractor-retailer is a business that makes frequent retail sales to the
				public or to other contractors and also engages in the performance of
				construction contracts or contracts for reconstruction, alteration, expansion,
				or remodeling of structures. In determining whether a business is a
				contractor-retailer or a retailer only, the department looks to the totality of
				business activity and not only to one portion of the business's activity. Thus,
				the maintenance of a small retail outlet does not automatically transform a
				contractor-retailer into a retailer, and a large number of retail sales without
				a retail outlet can qualify a business as a contractor-retailer.
b. A business cannot claim the status of a
				contractor-retailer unless the business is in possession of a valid sales tax
				permit to report tax due from retail sales and from withdrawals of materials or
				supplies from inventory for use in construction contracts.
c. A contractor-retailer must purchase
				building materials, supplies, and equipment placed in its inventory for resale;
				the contractor-retailer should not pay sales or use tax to its suppliers for
				these items. Instead, the contractor-retailer should provide suppliers with
				valid resale exemption certificates. When a valid certificate is furnished, the
				vendor is relieved from the responsibility of collecting the tax if the
				purchaser has demonstrated that the purchaser is a contractor-retailer under
				the provisions of this rule.
d. A
				contractor-retailer purchasing construction material that will not be placed in
				its inventory must purchase that material subject to Iowa sales or use tax. For
				example, if a contractor-retailer purchases wet concrete for use in a
				construction project, that purchase is taxable.
e. A contractor-retailer usually has a retail
				outlet, but if not, frequent sales to individuals or other contractors qualify
				a business as a contractor-retailer.
f. Contractor-retailers do not pay tax on
				materials withdrawn from inventory for use in construction projects performed
				outside Iowa.
g. The business
				records of a contractor-retailer must clearly reflect the use made of items
				purchased, and the records must be in such form that the director can readily
				determine that the proper sales and use tax liability is being reported and
				paid.