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We are based in NC and perform work in several other states. All work is on federal projects - none are private. Do we have a responsibility regarding sales tax?

Full Question: We are based in NC and are currently under contract to perform work in several other states (GA,VA,SC). These are all federal projects non are private work. If I travel to GA to perform services and I supply both materials and labor that I sell to a party who then sells it to the Primary General Contractor who then sells it to the Building Owner (Federal Government). Do I have a responsiblility regarding sales tax and possibly income tax to the states I am performing the work or would those fall on the party that is selling to the GC and my responsibility would be only income tax in my primary state of NC? Would the responsibility fall on the party selling to the GC as they take possesion of the product in the state the work is performed before they sell it to the primary GC? Now the same situation above but what about on a private project?

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Answer:

Diane Yetter photoWhen doing work for an exempt entity, such as in a federal government construction contract, the exemption doesn't always flow through to each contractor and subcontractor. We must look at how each state in question handles federal government construction contracts. In Georgia, contractors are considered the consumer of tangible personal property regardless of whom the real property contract is performed. No general sales or use tax exemption applies to contractors performing work for a governmental entity, so you would have sales and use tax liability. It should also be noted that non resident contractors are required to register with the State of Georgia prior to performing any work in the state and may be required to post a bond. Also, there is a requirement that resident general contractors withhold a portion of the payments to non resident contractors in certain situations. In Virginia, if a contractor contracts with a government entity to perform construction or reconstruction with respect to real property and, in connection with this real property contract, agrees to furnish tangible personal property (TPP) for use in real estate construction, the contractor is deemed to have purchased the TPP for use and consumption and is liable for the sales and use tax on the TPP. A subcontractor to a prime contractor with a government entity is granted the same tax treatment as the prime contractor when fulfilling its contractual obligations to the prime contractor. There is no exemption for materials used by a contractor (prime or sub) incorporated into a real property construction contract with a governmental agency. In South Carolina, sales to, or purchases by a construction contractor of tangible personal property for use in a federal government construction contract in South Carolina for which the contractor has a written contract with the federal government are not subject to sales and use tax if the contract provides that title and possession of the property is to transfer from the contractor to the federal government at the time of purchase or after the time of purchase and such property actually transfers to the federal government in accordance with the contract or the property becomes part of real or personal property owned by the federal government or is to transfer to the federal government. If a subcontractor on the project doesn't have a written contract with the federal government, then the subcontractor's purchases are subject to sales and use tax. However, if the subcontractor is an agent for the general contractor and has a written contract with the general contractor who has a written contract for the project with the federal government, then the subcontractor's purchases are not subject to sales and use tax. The written contract is a requirement for the exemption. However, South Carolina will only consider a subcontractor to be an agent for a general contractor in this situation if a number of requirements are met. We suggest you contact a sales tax expert to research the requirements to see if you meet them. In the three states that you mention (GA, VA, SC), contractors working on private projects are deemed the ultimate consumer of the materials purchased and must pay sales or use tax on the purchases. They are not required to charge sales tax to their customers on the contract price. When performing services in other states, it's likely that you have income tax nexus in those states. You should contact an income tax expert to determine if you have nexus in these states.

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