Sales and use tax issues can be particularly vexing for contractors, especially if your company operates in more than one state.
Sales tax laws and regulations affecting the construction industry are both complex and counter intuitive. To make matters worse, statutory differences from state to state can create a compliance nightmare, and a sales and use tax audit can result in a crippling tax assessment well beyond your true liability.
McClellan Davis has extensive experience in dealing with complex issues pertaining to construction. We have represented hundreds of contractors for compliance, audit and appeals purposes, including small contractor audits up to individual transactions worth several billion dollars. (See results below) Dan Davis, one of our founding principals, is the author of the Multistate Guide to Sales and Use Taxation: Construction, the leading sales tax guide for the construction industry, with over 15 editions to-date. Our firm is also responsible for drafting sales and use tax regulatory language that provides useful guidance for the construction industry in California.
Our Construction Contractor Services
- Sales Tax Audit Management: Because many of our professionals are former state sales tax auditors, supervisors, reviewers or trainers, they have the insider knowledge needed to guide you through the audit process. We can even have the audit transferred to our office, in some cases. We work directly with the California Department of Tax and Fee Administration or other state taxing agency to minimize interruptions to your business, permitting you to focus your time and resources on what matters most – operating your construction business!
- Compliance Services: The best way to avoid a large audit liability is to prevent it from being assessed in the first place. Our expert sales tax advisors can provide your business with the necessary sales and use tax guidance to help enable your business to accurately apply sales tax to your transactions and to properly document your sales, purchases and any applicable sales tax exemptions. Our team of experts have performed in-depth research in every state that applies a statewide sales and use tax. Moreover, we have litigated dozens of construction contractor sales tax issues which provides us with a unique understanding of where issues exist, so we can help your company avoid making costly mistakes that others have.
- Tax Minimization Services: With complexity, comes opportunity. Under certain circumstances, your company may be able to legally minimize its sales and use tax obligation by properly structuring its transactions. This is particularly true for Federal and Indian contractors.
- Sales Tax Audit Defense and Appeals: If your audit results in an overstated sales tax liability, we can file a petition for redetermination and represent your business through the administrative appeals process. Our sales tax attorneys and auditors have a very high rate of success obtaining reductions to sales tax liabilities. If it becomes necessary, we have the staff available to take your matter to court in order to obtain a favorable outcome. Contact us today for a consultation.
- Settlements and Compromises: In cases where the best course of action is to settle, our sales tax experts prepare and submit paperwork, negotiate with the state and seek to resolve the case with a favorable settlement.
- Litigation Support: If your construction company reaches the judicial level in its tax appeal, we have attorneys that can represent your business directly, through the entire process. We can also provide expert witness and consultation services to assist your sales tax legal team in a sales tax court case.
- Single or Multistate Return Preparation: Nobody has to tell you what a time-consuming and laborious process filing tax returns can be — even more so when your business operates in multiple states. Let our staff manage your filing, cost-effectively and efficiently, so you can focus your time on operating your business and rest assured that your returns are being prepared correctly and filed timely. Our return and compliance services almost always provide a cost-effective alternative to preparing returns in-house.
- Refund Claims and Reverse Audits: In situations where your business has overpaid tax, we will work with you and the agency to get your money back by filing a sales tax refund. Usually, we are able to do this on a contingency fee basis — so if you don’t get money back, you pay us nothing. We have successfully obtained sales tax refunds for numerous contractors.
Specialty Contractors We Represent:
We represent all types of construction contractors, but following are some of the specialty contractors that we represent, many of which have specific rules that apply to their area of expertise.
- Federal (United States Government)
- Cabinet and Millwork
- Infrastructure and Site Development
- Oil and Gas
- Power and Utility
What to do When You Receive an Audit Notice?
If your construction company has just received notice of a tax audit, McClellan Davis can create a custom strategy for your California sales tax audit, or other state sales tax audit. We’ll work directly with the state auditor, handle correspondence and do all we can to allow your business to operate without significant interruption. Call our office to speak to one of our professionals; we’ll be glad to provide you with a free, no obligation, initial consultation to address your sales and use tax concerns.
What to do when you receive a bill?
Whether your audit was managed in-house or by an outside advisor, McClellan Davis can review the results of your audit and advise you of your options so an informed decision can be made. Sometimes the most prudent business decision is to accept the results of an audit, but you need to have the right person review the audit results to make the right decision. Typically, we are able to uncover opportunities for significant adjustments to your sales tax liability, even if you were represented by a professional in your audit and we will provide you with a free initial consultation and/or a capped fee audit review to help you make the right decision. Click here to view some of our past results.
Why Choose McClellan Davis, LLC?
McClellan Davis has a long history of helping businesses with a variety of complex sales and use tax issues. We’ve represented thousands of clients — from small sole proprietors to large multinational corporations. Our qualified staff of former state auditors, attorneys and CPAs, our focused practice on sales and use tax, coupled with competent extensive experience provides us with a unique ability to help your business. If you have a construction contractor business, our experts are highly qualified and able to provide you with the support you need.
Common Sales and Use Tax Issues for Construction Contractors
- Establishing the correct measure of tax; raw material, completed product cost or marked up selling price;
- Taxability of related services;
- Sales versus use tax;
- Subcontractor and general contractor obligations;
- Timing of the incidence of tax;
- Products purchased for use outside the state of purchase;
- Contract terms and language;
- Fabrication and assembly labor;
- Installation labor;
- Transportation charges;
- Place of sale;
- Specialty contractor rules, e.g., federal contractors.
Industry: Lump Sum Construction Contractor
Procedural Summary: Appeals, Claim for Refund
(100% Reduction + Refund)
This case came to us with a total liability of approximately $700,000 but ended with our client being granted a refund totaling approximately $250,000. The case included two separate audits and a separate claim for refund. Our firm became involved after the audits had been completed, and unsuccessfully contested by two prior representatives. The first audit period had an asserted liability of $390,000. We were able to reduce the liability to zero and establish a net refund of approximately $100,000 for that period. The second audit period had an asserted liability of $295,000. We were able to reduce that liability down to $40,000. Finally, we filed a claim for refund for the periods following the second audit, establishing that our client was due an additional $150,000. This case serves as a good example of the complexity and confusion that exists in construction contract law. The correct result eluded numerous experienced professionals for several years before our firm became involved.
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