ORIGINAL (COMPLETE) QUESTION WAS AS FOLLOWS:The state of Rhode Island imposes its sales tax on retail sales or rentals of tangible personal property, other than sales for resale. (RI Gen Laws Sec 44-18-7). The sales tax is not imposed on sales of real property. Rather when real property sales, repairs, and remodeling is performed, the contractor performing the work is deemed the consumer of the materials incorporated into the real property. This applies regardless of the contract type (time and material, lump sum, etc). The proper process is for the contractor to pay tax on all materials purchased for either incorporation into the project or tools purchased for use in the project. No tax should be charged directly to the customer on the project. Rather, the sales tax paid on the materials are simply part of the cost of the project and should be factored into your cost and price determination. If you use a sub-contractor, they should pay tax on the materials they use in performing their portion of the job. (RI Reg SU 91-27). You should stop collection the sales tax on the job and in fact you likely need to refund the tax collected to the customers or remit it to the state as if you have been collecting tax on the project, you have been acting as a retailer and should not have. The only exception to this rule is if you are performing work on real property owned by a government or other non profit entity. In this case, no tax must be paid on the materials incorporated into the project. There are conditions that must be met. The only time you should be claiming exemption on materials and collecting sales tax is if you sell materials without installing them into real property. In this case, you should be registered as a retailer with the RI Department of Revenue and issue a resale certificate to your supplier and collect RI sales tax on all sales delivered in RI. I have attached the regulation and statute cited above. If you have further questions or need assistance in resolving your issue, we are available to consult with you.