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Old 03-31-2011, 08:11 PM   #1
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Sales taxes for building a new home


Ok, I just realized that when I buy materials for building my home, I will have to pay sales tax!

If I hired a builder to build my home, do I pay sales tax on the materials that way?

If I buy a brand new home in a subdivision built by one of these mega builders, do I pay sales tax?

I've never bought or built a brand new home before. This realization was pretty painful. That is a 10% penalty for building my own home. Is this right?

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Old 03-31-2011, 08:23 PM   #2
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Sales taxes for building a new home


So, I don't build homes. I own/operate a "Household HandyMan" business and yes, I do have to buy materials to do my jobs. Now, do you think that I just pass off the 7% Ga. sales tax and NOT pass it along to the customer? NO. I, personally, don't mark-up materials. I do show, or give a copy of , the original material invoice to the customer showing the material cost AND the taxes paid.

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Old 03-31-2011, 09:27 PM   #3
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Sales taxes for building a new home


Dale,
you always pay the tax, like living and breathing. Like Thurman said, sales tax is just another cost of doing business that gets passed along.
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Old 03-31-2011, 10:06 PM   #4
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Sales taxes for building a new home


So professional builders are paying sales tax when they buy material? Just trying to understand.
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Old 03-31-2011, 10:46 PM   #5
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Sales taxes for building a new home


Depends on the state you live in. In NY,there is no sales tax on capital improvements.
I buy windows(as a contractor) and I don't get charged sales tax.
Consumer purchases are something else. You would need to contact the state to find out.
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Old 04-01-2011, 10:54 AM   #6
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Sales taxes for building a new home


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Originally Posted by dalepres View Post
So professional builders are paying sales tax when they buy material? Just trying to understand.
I suspect they do not. If their business has a resale certificate, they won't have to pay any sales tax on materials to build something for somebody else. No different than a restaurant not having to pay sales tax on food they buy.

I am not a building contractor, licensed or otherwise, but my wife and I did build our log house by ourselves. At the outset, I went to a local lumber yard and explained that while I wasn't a contractor, I would be buying lots of lumber and other things from them so I wanted contractor pricing and the other attendant perks (free delivery, etc.). They did not charge me sales tax.

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Old 04-01-2011, 10:57 AM   #7
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Sales taxes for building a new home


Think of it as contributing to the community. That's not actually what's happening but if you think of it that way it may be an easier pill to swallow!
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Old 04-01-2011, 11:46 AM   #8
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Sales taxes for building a new home


Just to expand on what md2lgyk said, i.e. a contractor who has a resale license not paying tax when they buy materials for a home they are constructiong, I believe that you would find that, in at least most, if not all states, there is another side to the license, in that it is not an exemption, but rather it is a license issued by the state to the contractor, allowing the contractor to collect the tax from the homeowner. The contractor in turn, is required to pay the tax that they collect from the homeowner to the state. One of the reasons that they do this by the way, is that many states tax at the highest markup. In other words, you don't pay tax on a 2x4 at the rate that the logger pays the landowner for permission to cut the tree, or the mill at the rate that they pay the logger, nor even the rate that the lumber yard pays the mill. You pay tax at the rate that the the lumber yard charges you, which is the rate after all of the middlemen have been compensated. This is really not much different than purchasing an automobile, or anything else for that matter. With the exception of certain things, which however are generally handled in the form of a tax credit, rather than a tax exemption, you pay tax on almost anything that you purchase.
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Old 04-01-2011, 01:01 PM   #9
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Sales taxes for building a new home


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Think of it as contributing to the community. That's not actually what's happening but if you think of it that way it may be an easier pill to swallow!
Subtle and well put!
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Old 04-03-2011, 02:53 PM   #10
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Sales taxes for building a new home


What State are you in?
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Old 04-03-2011, 03:52 PM   #11
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Sales taxes for building a new home


I have bought 3 new houses over the years (2 in Connecticut and 1 in South Carolina). I did not pay sales tax on the purchase price, the builder paid sales tax on the materials he purchased and that was part of the contract price. I build 1 house in Mass., I paid the sales tax as I bought the materials. I have purchased several resale houses in CT and SC, never paid sales tax on any of them.
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Old 04-03-2011, 03:59 PM   #12
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Sales taxes for building a new home


HarknessConst, I'm in Oklahoma.

It sounds like someone always pays sales tax on the build/sale of a new house. If so, then I guess I'm not too screwed by paying taxes at the lumber yard. I guess when you buy a not-new house you don't pay but a new house someone pays. Taxes... someone always pays.
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Old 04-03-2011, 04:55 PM   #13
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Sales taxes for building a new home


Dale,

You're correct. When I use my resale card it's because I am building for a client, the tax is applied to their final bill as I have to charge tax on mark-up and labor also.

When I am building a home for spec I pay the sales tax on materials and subcontractors, then (in Washington) I pay 1.78% excise on the total sales price of the home.
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Old 04-03-2011, 05:20 PM   #14
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Sales taxes for building a new home


Typically the "end user" pays the sales tax. If you bought a house from a builder and he doesn't list the sales tax, then you just don't know about it, but it's in there (similar to the tax on gasoline). If you build the house yourself, you can claim the sales tax on your state return, which can mean a substantial amount back from the state. However, when you go to sell the house, your exposure to capital gains tax (which doesn't/won't apply to most of us) is calculated as the difference between the current sales price less the original cost excluding the sales tax.
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Old 04-03-2011, 08:08 PM   #15
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Sales taxes for building a new home


Thanks, Harkness and Wireless. This is good information and answers my question.

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