For sales and use tax purposes, a manufacturer can be defined as one who converts some form of tangible (generally personal) property into another form that has a different function or purpose.  Construction contractors may be regarded as manufacturers when they substantially modify materials or fixtures before installing them, rather than just buying such items in a ready-to-install state.  For purposes of this article, all references to “materials” and “fixtures” will pertain to property that contractors affix or otherwise convert to realty.  Most states expect contractors to pay sales or use tax only on the costs of the physical components [...]

Construction-related installation labor (affixation or conversion of tangible personal property to realty) is taxable to varying extents in 14 states.  Since repairs to realty (restoration of real property to its original condition) were featured in the previous installment, I’ll try to avoid covering similar ground to the extent possible.  However, overlapping treatments of installation and repairs are built into the sales and use tax statutes of a few of the states, so some duplication of the applicable commentary is inevitable.    The states that tax all construction-related installation labor are Arizona, Hawaii, New Mexico, and Washington.  In Arizona, contractors are taxed [...]

In the majority of states, services related to construction are not subject to sales tax.  In a large minority, however, one or more construction services are specifically included in the sales tax base. The two major forms of labor (services) associated with construction contracting are installation (affixation of tangible personal property to realty) and repairs to real property.  In some states, installation labor that results in new construction is treated differently from installation associated with a remodel or reconstruction.  In addition, the dividing lines among repairs, reconstruction, and new construction may vary from state to state. Other common construction services [...]

In the previous article we discussed states that unequivocally regard construction contractors as consumers (end users) of the materials and fixtures they install.  In this installment, we’ll look at California, which treats contractors as consumers of materials but retailers of fixtures.  We’re featuring California because it provides what may be the clearest example of the consumer/retailer concept in action.   We’ve previously defined materials as items that lose their individual identity when incorporated into real estate, such as nuts, nails, and screws. Fixtures are items that remain readily identifiable after installation, such as sinks, light fixtures, and water heaters.  A third [...]