Why As A Construction Contractor - Do you want a resale certificate when all it does is cause you more paperwork?
For a copy of the form click on http://www.alascop.com/pdf/WA_resale_cert.pdf
Some Contractors Say - It’s a hassle and if I just pay the tax to my supplier I’m done? No forms, no reports, it’s easy and simple. Each state has different set of rules for sales tax; for some states that is exactly how it works. Washington State can be a bit tricky and you either need to know the rules or work with someone who does.
My Very First Question To You Is - Who else are you willing to pay up to 120 days in advance?
Of Course If Any Or All The Following Apply - To your company then it is not big deal; this isn’t for you:
You have lots of money, no cash flow issues, and every one of your clients pay before you even ask
In Washington State the Resale Certificate was developed for construction contractors to not have to pay the sales tax on material that they plan to resell in the course of their business.
Tied to your Master Business License - Is the Collecting and Paying of Sales Tax. The form used is commonly known as the “Sales Tax” Report (Washington State Department of Revenue or DOR Report) is actually the Combined Excise Tax.
This Form Is Used For Reporting - All your Business Income, Sales Tax, and Use Tax. Reporting periods are Monthly, Quarterly and Annual. Most Construction Contractors are on Monthly or Quarterly Schedule.
Combined Excise Tax (DOR Report)- Needs to be filed even during time periods of “No Business Income” The only way Construction Contractors are able to stop filing Combined Excise Tax (DOR Report) is to close their business.
Washington State Resale Certificates - Help contractors increase cash flow. Combined Excise Tax (DOR Form) needs to be filled out “TOP Down” and learning how to fill out State, Local or Federal Government Forms is a skill set just like learning to frame a straight wall or finish stamped concrete.
Professionals Make It Look Easy - Because they have the 10,000+ hours of combined training and practice. Sometimes contractors get confused with the section for Sales Tax Paid At Source Exemption. Thinking that the number to report in Part 1 for the State Business Occupation portion is the Net Number after Sales Tax Paid At Source is computed is incorrect.
This Report Is All About - What, When, How and Why. What is your business income? (Wholesale, Retail, Service) When did it become Income? How did you pay sales tax? Why is it taxable or non-taxable?
Part 1: State Business Occupation Form (B&O Tax)
Primary fields used by Construction Contractors or Professionals in related fields are:
Wholesale B&O tax classification, if provided a reseller permit by general or prime contractor.
Retail B&O tax classification is for all other classifications
Service B&O tax classification is for professionals where no sales tax is required
Part 2: Sales Tax
Retail numbers flow to the next portion of the Combined Excise Tax Form (DOR Report)
Here is where the state allows a deduction for amounts “Paid At Source”
IMPORTANT RULE: Contractors doing business in Washington State are obligated to pay sales or use tax on all materials consumed in your construction company including tools, sandpaper, etcetera although you may not owe sales tax on materials which become a permanent part of the building. In most cases you should be able to use a reseller permit to purchase these items. The majority of problems we see come from construction company owners knowing exactly which items are considered “consumables”
RISK: You may think you know the correct amount or have been in a hurry when completing your Combined Excise Tax (DOR Report) and claimed all sales tax paid to material suppliers, equipment rentals and dump fees. Not all of these purchases qualify for “Sales Tax Paid At Source” deduction and this is something that can wipe out a lot of bottom line profit if you are not careful!
The List Of Taxable Consumable Items - Is very long and subject to change without anybody notifying you in advance. Most reputable material suppliers and equipment rental companies receive lists breaking down the items that are taxable and non-taxable for proper collection and reporting of sales tax.
RULE: It’s important to note that sales tax must be collected on the total price of the item or contract when the materials are resold.
RISK: Unless you have received a large job deposit from your Customer; it’s your MONEY you are using. Some construction company owners have trouble asking for the Money! Some Customers only want to pay when the job is 100% complete and then nit-pick and keep adding to the never ending punch list over the cost of each 2 x 4, nail or screw!
When You Pay Sales Tax At Time - You purchase material for the job then you simply have paid that portion of your client’s tax obligation early.
Negative Cash Flow: It’s all about the timing of the purchase. For example when your sales tax report is done Quarterly then material you purchase on July 1st is due October 31th. What if you still haven’t billed yet?
This Puts Unneeded Strain On Your CASH FLOW - Leading to a negative impact on your construction company. Remember you can only spend the money once. What if, you suddenly have an unexpected cash flow issues? Major Truck Repairs, New Tires, Equipment Breakdown, Payroll or Additional Material?
How Many Times Do You Want To Handle Your Paperwork - We use the O.H.I.O. (Only Handle It Once) method as often as possible! Taking advantage of the a little paperwork that it takes in the beginning to apply for and receive your Resale Certificate.
This Can Make The Difference - Between staying in business and looking forward to a more profitable business next year. As a General Contractor your subcontractors will be happier working with you knowing you have all your “Ducks In A Row And Well Organized”. Because most subcontractors would rather have the Sales Tax Resale Certificate than the tax!
This Is Very Important To Small Contractors - To be able to take advantage of one of the few times you have access to FREE Labor, it’s built into the cost of each piece of material you purchase. Your Material Supplier is already required to keep track of all the consumables that require sales tax to be paid at the point of purchase.
By Using Their Services To The Fullest - Frees up your Cash Flow and your time trying to figure out what qualifies for Sales Tax Paid At Source when you prepare your Washington state Combined Excise Tax (DOR) Return.
Proudly Frame Your New Resale Certificate - And put it on your office wall because copies are usually accepted by all your material suppliers.
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. http://www.fasteasyaccounting.com/sharie-dehart/