Sales and Use Tax: What Contractors Need to Know

Virginia contractors face more sales and use tax audits

Sales and use tax audits are becoming more commonplace these days. Where we have seen a particular uptick in activity is with contractors. Contractors with respect to realty generally are considered the taxable user and consumer of items they buy and use in their work – whether materials, tools and equipment, administrative and office supplies, etc. With purchases made locally sales tax generally is collected by vendors; however, with purchases made from out-of-state suppliers or online the vendor may not necessarily be collecting the tax. Purchases that are not taxed should be scrutinized to determine if they are taxable and if so, use tax should be reported directly to the Virginia Department of Taxation. Sometimes even local vendors may not be collecting the tax because they may have assumed incorrectly the contractor is not taxable or they may have in their files an old exemption certificate that no longer is pertinent to the contractor’s business.

Consumer use tax registration

Contractors normally are not registered for retail sales tax purposes unless they are also making retail sales. They should, however, be registered for Consumer Use tax, whereby when they make a taxable purchase that is not taxed by the seller, they self-report the use tax directly to the Department of Taxation. Consumer use tax returns must be filed only when there is tax to report. Virginia Department of Taxation auditors check on the reporting of consumer use tax by contractors and absent any may contact the contractor for audit. And, if no use tax has been reported the Department may extend an audit back six years rather than the normal three years for an audit.

Our article, Sales and Use Tax Audits: Businesses Beware!, addresses use tax generally. The information in the article is still relevant; however, more vendors these days are required to collect Virginia sales/use tax. If you are concerned about possible sales or use tax issues, are under audit by Virginia or another state, or have questions please reach out to your Keiter Opportunity Advisor.