When you are working on home improvements, you always want to know the cost. What is the bottom dollar on this project? If you are using a contractor, it is likely that there will be sales tax when they purchase materials because they do not always own the materials outright. The transaction itself between you, the homeowner, and the contractor is not taxable. It all depends on the type of home improvement. Goods are subject to sales tax and this includes physical property like furniture, home appliances, and motor vehicles. Anything provided to a customer at no charge is not taxable but if a customer purchases any kind of warranty, that is taxable at the time of the sale.
Are Home Improvements Exempt?
Home improvements that are exempt from sales tax are anything that is an agricultural process, fuel, or manufacturing good. The current sales tax rate in Utah is 4.85% and local governments are allowed to collect an option sales tax of up to 3.35%. Most jurisdictions are collecting an average of 2.06%.
A construction contractor generally converts personal property into real property. This is by attaching personal property to otherwise incorporating personal property in real estate. In most places the contractor who performs this is usually due sales tax by the supplier and contractor. Utah is not one of the states who regards construction contractors as retail sellers of materials they install. This is only the case in California, Colorado, the District of Columbia, Indiana, and Texas.
Anything done with machinery, raw materials, utilities or fuel is exempt. Optional service maintenance contracts are exempt as well. In any kind of home improvement construction you should watch for the contractors agreement because they can markup and charge you more for the materials, supplies, and labor when it isn't subject to sales tax. Oftentimes these can be negotiated and it is best to get several quotes on a job to see if you are accounting for the sales tax correctly. There are two types of contracts, a lump sum or a time and material contract. A lump sum contract specifically charges one price for the entire job. A time and material contract charges you for all the material needed and all the time worked, which in some cases can be a blessing if the job takes less time and in other cases, if there is more work involved, it can cost you more.
It is all dependent on the type of contract you are working with. This determines the sales tax on your home improvement and what is required. Do your research carefully.
For more information on ST. George real estate or Southern Utah homes, contact our office at any time.
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