California Sales Tax Audit – Construction Subcontractor Sales Tax Liability- Resale Certificate Not Available

SUBCONTRACTOR SALES TAX
California Sales Tax Audit Attorney:

A California subcontractor who has furnished and installed materials or fixtures for a general or prime contractor must pay California sales tax on the materials cost or in the case of non U.S. contractors the retail selling price of the fixtures installed. California BOE Sales Tax rules require a subcontractor who has furnished and installed materials or fixtures for a prime contractor must pay tax on the cost of the materials or in the case of non U.S. contractors the retail selling price of the fixtures installed.

A subcontractor may not accept a resale certificate from a prime contractor for materials the subcontractor furnishes and installs. Under most circumstances, California BOE Sales Tax guidlelines state that subcontractors may also not accept a resale certificate from a prime contractor for fixtures the subcontractor furnishes and installs.

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However, a subcontractor may furnish and install a fixture for a person, other than the owner of the realty, who intends to lease the fixture in place as tangible personal property and pay tax on the rental receipts. In this latter case, the subcontractor may accept a resale certificate from the lessor at the time of the transaction.

Most Sales Tax Audits for subcontractors spin off from an audit conducted on the general contractor which would disclose potential untaxed transactions among the many related companies and sub contractors in its network. In that regard, subcontractors should consider material purchase arrangements or construct their contracts with either the general contractor or the owner of realty to reduce or eliminate potential sales tax liability.

Source Document from EDD