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grunti39 08-14-2007 08:55 AM

Cost plus expense?
If a cost plus arrangement of 20% is used for a remodeling job, should the 20% factor be used against sales taxes or, should taxes be added after calculating the 20%?

Thanks for your input!

warnerww 08-14-2007 01:06 PM

Never actually had any experience with this but it seems to me the 20 percent should be before taxes.

Ron6519 08-14-2007 04:31 PM

Are you speaking about the cost of materials? The markup varies. The way a contractor figures it varies. And at no time do I explain the estimating process to the customer. It's none of their business.
They tell me the specifics of the job and I give them a bid. If they don't like it they can go somewhere else.
Do you think Home Depot is going to explain how to you how they price a Kohler sink?

MinConst 08-14-2007 08:30 PM

Ron is right on. But I will try to elaborate. Cost plus is normally used because a contractor puts out x amount of money. If he pays sales tax on the product he is putting x+tax out of his pocket to pay for your products. So figuring x plus tax plus is reasonable if that is how the contractor figures his price.
He should not have to explain this to you if you are the customer.

warnerww 08-14-2007 11:23 PM

How many experienced contractors say I will charge you cost plus. These are the guys who are not sure what they are doing. I am a DIY guy and have worked for licensed contractors. I have given thought into the business and cost plus is the easy way out. If this is the way you get an estimate you should be careful. I do still believe cost plus should still be before taxes.

grunti39 08-22-2007 04:07 PM

Thanks for input!
I appreciate each of your inputs! A premium (cost plus) for materials and labor is understandable but when it is used on top of taxes it becomes in effect tax on tax. The ultimate consumer pays the tax but should not be charged more than is bound by regulation. Been audited too many times I guess! A price agreed to up front is the best way to go for all concerned.

Sammy 08-22-2007 06:44 PM

If you are not tax exempt for the materials then the tax should be included in the total cost of the job and marked up accordingly. You have carrying cost to front the money on the tax until you get paid the same as you do on material.

Dansbell 08-22-2007 10:05 PM

I have worked on several cost plus projects. They can be a very positive partnership. We did renovations for a national retailer where each project was different as to size and scope but the final product similar. We agreed to a cost plus relationship where we managed the construction project for the owner. It worked out well for both of us. As far as sales tax - It Depends. If you purchase materials from the hardware store and pay tax on it then I believe we added our % to the total price. Many times we purchased goods wholesale and had to figure the tax and report it to the appropriate state. When this happened our invoice showed the goods with the added % and then the tax that was reported to the state. Tax was never part of the profit.
Luckily for me this is something I do not deal with much any more, as I live and work in sales tax free Oregon.

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