Lawmakers will meet Thursday to discuss a bill meant to make it easier for contractors to know when they owe sales and uses taxes on materials used in construction projects.
Assembly Bill 340, which would extend to all manner of construction contracts a tax exemption passed four years ago, is scheduled to go before the Assembly Committee on Ways and Means shortly after 10 a.m. Thursday in Room 328 Northwest of the state Capitol.
The proposal would expand an exemption that now helps simplify one of the more complicated tax questions construction companies encounter: Who should pay sales taxes on particular construction materials? Is it the contractor or the owner?
A law passed in 2013 provided a partial answer. Now, when a project is being built under a lump-sum contract and less than 10 percent of its value comes from so-called personal property – things that can easily be picked up and moved – it’s the contractor.
Before that change, contractors had to make sure to separate out any personal property going into a project and pay taxes only on the real property. Taxes on personal property were instead collected from project owners.
Lawmakers are now proposing to extend the exemption given to lump-sum agreements to all sorts of construction contracts.
In previous years, attempts to win approval for similar legislation have run aground on concerns about the state’s budget. The state Department of Revenue has estimated that the latest proposal’s cost to the state would run to about $1.1 million a year.
That estimate is a result of contractors’ having to increase the price of personal property before selling it to owners in order to take into account labor and installation costs. Because of those additional expenses, materials that are classified as personal property tend to generate more sales tax than those deemed real property.
For the same reason, local governments would be expected to be out $79,000 a year, according to the Department of Revenue.Follow @TDR_WLJDan