Southern Arizona Department of Revenue has in fact changed things up for contractors and sales tax! Its simplified but not really. I attended two classes on this now and thankfully feel a little more knowledgeable of course until it changes again.
Okay, so here are the facts.
There are two types of contractors
- Prime Contractors –
- Prime Contractors are basically those that are contracted for constructing a building/structure from the ground up.
- Collection of sales taxes (and reporting is your responsibility)
- Non-Construction or Service Contractors –
- Work with the property owner on maintenance, repair, de minimis modification or replacements
- Pay sales taxes when you purchase your materials (do not charge sales taxes to the end user)
Subcontractors for Prime Contractors should receive form 5005 http://www.azdor.gov/LinkClick.aspx?fileticket=J5WXVVJYLJY%3d&tabid=264&mid=868 so that the Prime is responsible for all sales tax collections on this project.
Subcontractors should provide their vendors with the Form 5000 for the specific project. http://www.azdor.gov/LinkClick.aspx?fileticket=hc4pFioHWp4%3d&tabid=264&mid=868
Sales taxes is now determined on a contract by contract basis.
Most Licensed Contractors in the state of Arizona have a TPT license # but if a Prime Contractor is working with an Unlicensed Sub-Contractor the contract and the Form 5009L http://www.azdor.gov/LinkClick.aspx?fileticket=qo9QtRpy4MA%3d&tabid=264&mid=868 must be sent to the AZDOR to determine the tax implications for both contractors. In other words, you don’t want to be in this situation.
There is a lot of room for error when it comes to the definition of modification (Prime Contractors and Non-Construction Service Contractors) can do modification. As your looking at each contract be careful to examine these factors.
- Replacement – your just replacing or upgrading the system such as HVAC, bathroom cabinets, carpets
- Repair – activity restoring, repairing from inoperable state to a usable state such as recharging your A/C unit, clearing pipes, or making adjustments
- Alteration– causes direct physical change to real property such as refinishing hardwood floors, enlarging a patio
If you are a Prime and you are doing the above type of work you fall into the Non-Service Contractor type and would pay sales taxes when you purchase materials. You would not charge your customer sales taxes AND vise versa for NSC. You have to understand the contracts to make sure you are following the law here.
Be careful when bidding your projects and know which definition you follow. You want to make sure that you consider all these changes when you are bidding on contracts etc. These small amounts should be considered and a 10% difference can cost you your profit or the opportunity.
For all the changes in TPT in the State of Arizona please go to this link. http://www.azdor.gov/TPTSimplification.aspx
And for specific guidance on the contractor changes see the AZ Transaction Privilege Tax Notice, TPN 14-1, Dated November 18, 2014 at this link. http://www.azdor.gov/LinkClick.aspx?fileticket=HwBindIeIH4%3d&tabid=338
Only Prime Contractors (contracts that fall into the Modification definition) will need to send in sales taxes that are collected.
We are recommending that if we prepare your sales taxes to just send in the same information and we can get clarification if needed from you.
Finally, if you are still unsure give us a call and let us help you figure out the best course of action.