Transcript Agenda
CBIA’s 2012 Connecticut Tax Conference
June 1, 2012
Presented by:
Doug Joseph and Tony Switajewski
BlumShapiro & Company, P.C.
West Hartford, CT
Requirement to Collect Sales Tax (Nexus)
Basics of Sales and Use Taxation
Taxation of Services and Sourcing
Specific Services Discussed
Advertising
Business and Human Resource Management
Computer and Data Processing
Personnel
Real Property
Key Points to Keep in Mind
Action Steps
2
Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice
contained in this communication is not intended or written to be used, and cannot be used by
you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue
Service or State Tax Authorities, (2) no part of any tax advice contained in this communication is
intended to be used, and cannot be used, by any party to market or promote any transaction or
matter addressed herein without the express and written consent of Blum Shapiro & Company,
P.C., (3) Blum Shapiro & Company, P.C. imposes no limitation on any recipient of this tax advice
on the disclosure of the tax treatment or tax strategies or tax structuring described herein, and
(4) any fees otherwise payable to Blum Shapiro & Company, P.C. in connection with this written
tax advice are not refundable or contingent on your realization of tax benefits from the advice
contained herein.
This presentation is intended to provide general information and no tax advice is intended
to be given.
3
Nexus for service providers:
Generally, “physical presence” in a state by a service provider is
required:
▪ Property in a state (e.g., office, inventory)
▪ Sales personnel or independent representatives visit customers
▪ Scholastic Book Clubs, Inc.
▪ Performing services within a state
▪ Attribution nexus (e.g., click-through nexus)
▪ “Amazon.com” Use Tax Collection Legislation
Once a business has nexus in a state for sales or use tax
collection responsibilities, it is likely subject to other state
taxation.
4
The Basics of CT Sales Taxation on Services
Only listed taxable services are taxable
(“enumerated services”)
Sales tax is legally imposed on the retailer (seller)
▪ Retailer is to collect the tax from the consumer and it is a debt
from the consumer to the retailer when added to the sales
price.
▪ Seller must pay sales tax to CT whether or not it collected the
tax from its customer.
▪ What happens when you should have charged sales tax but
didn’t – can you go after your customer for the tax?
5
Advertising
Credit information and reporting
Computer and data processing
Employment agencies and personnel services
Private investigation, protection, patrol work, watchman,
armored car
Telephone answering
Services to industrial, commercial or income-producing
real property
Business analysis, management, management consulting
Public relations
Miscellaneous personal services
Repair and maintenance service to tangible personal property
Producing, fabricating, processing, printing or imprinting of TPP
Telecommunication
6
Reimbursable expenses are taxable when the
service is taxable
Separately stated reimbursed expenses are still
taxable if related to taxable service
Reimbursed expenses generally become part of the
gross receipts of the sale
7
Sourcing of services:
Sourcing is very important because CT taxes many
services not taxed by other states
CT DRS position has always been “where the benefit of the
service is enjoyed” is where the service is taxable
Easy when service is to real property, e.g., because
it is stationary (service to CT real estate is taxable in CT)
Difficulty is when services cross state lines or service benefit is
received outside CT and “brought back” to CT
Multiple points of use
8
Services to Identically Owned Affiliates
Applies to any types of business organizations (was once only applicable
to corporations)
Services Rendered to Qualifying Exempt Organizations
State of Connecticut and municipalities
U.S. Government
501(c)(3) or (13) Organizations
Nonprofit Charitable Hospitals
Resale of Services
Buying a taxable service that you will resell - must be an integral and inseparable
component part of a service to be resold to an end consumer (often seen in the
construction industry).
9
Who May Issue a Resale Certificate for Services
Intend to resell the service
To resell a service it must be enumerated in
Conn. Gen. Stat §12-407(a)(37) and become
an integral and inseparable part of services
enumerated under Conn. Gen. Stat. §12407(a)(37)
10
Accrual basis — general rule (when services
are rendered)
Cash basis — exception for sellers of services
filing Federal income tax returns on cash basis.
Handling bad debts
11
Tax Added vs. Tax Included
Tax Added
▪ Separately stated in tax line or box
▪ Amount stated must be remitted
▪ “Unjust Enrichment”
Tax Included
▪ Must be notated on invoices
▪ Mention in contract not enough
▪ Divide invoice x 1.0635
12
Taxable purchases made where sales tax was
not collected
Services that are not subject to Connecticut
Sales tax are not subject to the use tax
Pay use tax on Form OS-114, Sales and Use
Tax Return
13
NOT RELATED TO THE DEVELOPMENT OF MEDIA
ADVERTISING OR COOPERATIVE DIRECT MAIL
ADVERTISING
CT is highly unusual to tax advertising services
What Advertising is taxable?
Non-media advertising
▪ Creation, preparation, production, dissemination
▪ Consulting and advice
▪ Layout, art direction, graphic design, mechanical preparation,
production supervision
▪ Does not include marketing
▪ Does not include cooperative direct mail advertising
14
Marketing is excluded. What is Marketing?
Testing, research or analysis of existing or
potential consumer markets in connection with
the development of particular products,
property, goods or services
Includes consulting in connection with
marketing
15
What is Media Advertising (per SN 2003(6))?
Sale of time or space
In or on pre-existing medium
For broadcast or dissemination to all or segment of public
Examples of media:
• Newspapers, including advertising inserts and coupon inserts distributed
inside newspapers
• Magazines
• Radio, TV, Cable TV
• Billboards, Buses, Taxis
• Trade or Campus Directories
• Restaurant Placemats
• Cash Register Tapes
Does not include ads devoted to one particular advertiser
▪ Catalogs
▪ Flyers
▪ Brochures
▪ Posters
16
When taxable, what charges are taxable?
Hourly Fees
Vendor Costs
Commissions
Markups
Reimbursable Expenses, including mailing
services and postage
Collateral items (e.g., printed materials) are
sales of tangible personal property
17
Resales of Services by Ad Agencies
Writing, copywriting
Layouts
Art Direction
Graphic Designs
Mechanical Preparation
Typeset Copy
Production Supervision
Placement
Models
18
Ad agency is consumer of tangible personal property
and services
Paint, tools supplies, etc.
Original photos, artwork, video and audio tapes are
considered non-taxable intangibles if fee is only for
right to change, reproduce or market design
▪ May also be taxable component if separately stated
fee for services of graphic designer and if related to
taxable advertising services
▪ If fees are not separately stated, entire charge is
presumed to be taxable
19
Advertising sourced to where campaign occurs or where
materials are disseminated
May need to be allocated between states if multistate
campaign
For printed materials, allocation of service charge is
based on the circulation data for the print media or
publication.
▪ Printed materials themselves follow this same
allocation approach. Printed materials exemption
certificate may be required.
▪ May result in use taxes in other states where the
service provider has nexus, even if advertising
services are exempt.
20
Includes:
Business Analysis
▪ Examination of data, making of recommendations
Business Management
▪ Provision of general or specialized day-to-day management
Business Management Consulting
▪ Furnishing of advice or assistance on matters pertaining to
management
Business Public Relations
▪ Preparation of materials designed to influence the general
public or other groups by promoting interests of service
recipient
21
Does Not Include:
Valuation or appraisal of property (unless in
connection with business analysis services)
Insurance services
Investment Banking—see PS 92(9)
Environmental Consulting
Marketing
22
It’s not what the services are “called” that
determines whether or not taxable
Reg. Sec. 12-407(2)(i)(J)-1(c)(1)
▪ Look at nature of services rendered
Message Center Management, Inc. v. Commissioner,
affirmed by CT Supreme Court 6/19/07
▪ Management in the service provider’s name plus
management agreements with clients but services were
held nontaxable
Good idea not to mislabel services to avoid
confusion
23
Must be rendered to service recipient’s
Core business activities
Human resources management activities
24
Core business activities—activities directly related to service recipient’s lines
of business, its capital structure, its budgeting and strategic planning
Non-Core Business Activities
Administration of:
▪ Payroll
▪ Employee insurance claims
▪ Pension funds
▪ Food service operations
▪ Employee health services
▪ Mailroom delivery functions
▪ Plants & grounds maintenance
▪ Insurance claims against service recipient in capacity as insurer
▪ Self-insured claims
Investment advice
Particular interests of service recipient’s members, shareholders or
partners
25
Human Resource management activities
Hiring
Development
Job-related Training
Compensation
Personnel Management
Employee Relations
Design & Implementation of Employee Benefit
Plans
26
Exclusions
Separately stated compensation, fringe
benefits, workers compensation, and payroll
taxes paid to or on behalf of employees of
service provider who has contracted to
manage a service recipient’s property or
business premise
Employees must perform services solely at
recipient’s premises
27
Exclusions (continued)
General Partner Services Rendered To A Limited Partnership:
C.G.S. §12-407(a)(37)(DD)
▪ Provides that services are only taxable if:
▪ 1. Compensation is other than via distributive share of
partnership profits
▪ 2. General partner (or affiliate) offers such management
services to others, including any other partnership.
▪ Presumably, otherwise, general partner management services
for LP’s are nontaxable
▪ Caveat: does not necessarily apply to LLC’s!
28
PS 2000(4)
Falls under Business Management Consulting Services
Pertains to Human Resource Management Activities
Applies to job-related training
DRS longstanding position has been that services are
sourced to where employee is based rather than where
training occurs
▪ See discussion re Key Air decision
29
Topics must be directly related to employee’s
job skills
Indirectly related and unrelated are non taxable
Courses provided by institution of higher
education licensed or accredited by Connecticut
Board of Governors are non taxable
30
General education seminars are non- taxable
Refresher courses
Courses on current developments in particular field
Courses for continuing education credits
Service provider is consumer of course
materials and meals included in training price
31
Connecticut Policy Statements
2006(8) and 2004(2)
PS2004(2) – Internet access and online sales of goods and
services
Internet access is fully exempt
▪ However…ASP’s don’t come under exemption
Internet access is sourced to home base of
purchaser’s computer terminal
Electronically delivered software or digitized property
is CDP taxed at 1%--must separately state from any
associated TPP
True object is always key
Creation and maintenance of websites is non-taxable
32
PS2006(8) – Computer-related services and sales
of tangible personal property
CDP Includes:
▪ Programming, code writing and modification of
existing programs
▪ Implementation of software in connection with
development, creation, production of canned or
custom software or license of custom software
▪ Providing computer time, storing and filing
information, retrieving or providing access to
information
▪ Data scanning, creating custom software, computer
training, and online access to information
33
PS2006(8) – Computer-related services and sales of tangible
personal property (continued)
Taxed at 1%
Hardware and other tangible personal property is taxed at
6.35%
▪ Separately state or unbundle. Otherwise everything is
taxed at 6.35%
Separately stated hardware installation is exempt (unless
hardware is leased rather than sold/purchased)
Repair and maintenance of hardware taxed at 6.35%
Canned software is tangible personal property taxed at
6.35% (unless delivered electronically-taxed as CDP @1%)
34
Custom Software
▪ For particular needs of a customer
▪ Must bear little resemblance to any but basic
functions of canned software on which it was based
▪ Taxed as CDP service at 1%
▪ License fees for mere use and possession of
custom software are not taxed if separately stated
35
Software installation, maintenance, support and
upgrades
Regardless of whether canned or custom
Software maintenance and warranty contracts are CDP
whether canned or custom
Upgrades of canned software
▪ Sale of tangible personal property – 6.35%
▪ Delivered electronically – CDP service – 1%
Maintenance and warranty contracts providing for phone
support and tangible personal property upgrades are
taxable at 6% unless charges separately stated
36
Computer Training
▪ If job related, taxable at 6.35%
▪ If not job related (e.g., attorneys learning how to use
e-mail), taxable as CDP service at 1%
Computer personnel services taxable at 6.35%. See
following slides and PS 2007(7) for details of
personnel services rules
37
Software as a service (SaaS) - Cloud
▪ Connecticut – Taxable (1%)
▪ New York – May be Taxable
▪ Massachusetts – May be Taxable
38
PS 2007(7)
Employment Agencies – Brings together an employer
and employee for a fee or commission
▪ Doesn’t apply to procurement of jobs on one-time or
short-term basis for independent contractors
▪ Service is taxable at 6.35%
39
Personnel Agencies – Furnish temporary or part-time help
Agency is employer
Any business can be considered a “Personnel Agency”,
even a related entity
▪ Doesn’t have to be in business of furnishing help
Service recipient controls work of agency’s employee
▪ Similar to employee – independent contractor analysis
▪ Degree of prearrangement of services by agency is key
▪ If no prearrangement, will be personnel service
All gross receipts are taxable at 6.35%, not just agency’s
commission
40
Leased Employees Exception
▪ Defined by IRC Section 414
▪ Employee works substantially full-time for service recipient for
at least one year
▪ Must be agreement between service provider and service
recipient
▪ Services must be of type historically performed by employees
▪ If 75% of agency employees under contract meet definition at
commencement, all employees under contract qualify for
exclusion, including those that are subsequently added to
workforce
▪ Exclusion is for all compensation and employment related
expenses of leased employees
41
Similar exclusion (to that for leased employees)
applies to worksite employees under professional
employer agreement between professional employer
organization (“PEO”) and service recipient
Also, similar exclusion for a “media payroll services
company”
▪ Relates to CT’s initiative to attract production companies to CT
42
A contractor’s labor (or service) is subject to tax
when the service is to:
Existing commercial real property;
Existing industrial real property;
Existing income-producing real property
43
A contractor’s labor (or service) is not subject to tax when the
service is to:
New construction;
Owner-occupied residential property;
Charitable or religious organizations;
Qualifying governmental agencies or their agents;
Real property owned by federally recognized Indian tribes
when the service is performed in federally recognized
Indian country;
Low and moderate-income housing;
Contracts performed out-of-state;
Hospitals and certain other exempt entities; or
Real property located within a public right-of-way.
44
Contractors are the consumers of materials and
supplies used in fulfilling their construction
contracts.
Contractor pays tax on purchases of physically
incorporated materials.
Generally, a resale certificate cannot be used
when contractor purchases materials.
45
A contractor’s service (labor) charge, is determined by
subtracting the cost of materials (including tax paid
on materials) from the total contract price.
Every cent above the contractor’s cost of materials
that are physically incorporated into the real
property AND already-taxed subcontractor services,
plus the tax paid on those materials and services, is
considered the service charge.
46
The charge for labor (or service) includes:
The actual labor charge;
Any markup or profit on labor;
Any markup or profit on materials;
Overhead expenses;
Tool or equipment purchase or rental, including tax paid on
the rental; and
Reimbursed expenses incorporated into the bill (whether or
not the charges are separately stated).
47
Tax Held in Trust
It has been the incorrect practice of some contractors to
reimburse themselves for tax they paid on materials out of
the tax they collect from their customers. Conn. Gen. Stat.
§12-408(2) provides that tax collected by a retailer is held
in trust for the state, and the entire amount of tax collected
must be remitted to DRS or refunded to the customer.
▪ DRS calls this “unjust enrichment” when contractors follow
this erroneous practice.
48
Tax held in trust (cont.)
Example: Contractor buys materials for $100 plus
$6.35 CT sales tax. Contractor performs taxable
services to customer’s real property and charges
$1,000 for labor and materials (either in lump sum or
with materials and labor shown separately) and adds
$63.50 of sales tax. To avoid “double taxation”on the
$100 of purchased materials and to tax only the labor
portion of the job, contractor deducts $6.35 of materials
tax on sales tax worksheet and remits $57.15.
49
Tax Held in Trust (continued)
What is wrong with this?
▪ Contractor MUST remit what he charges as “tax” (i.e.,
$63.50).
▪ Correct approach: Contractor bills $1,000 plus $56.75 of
sales tax
($1,000 less materials cost of $106.35 x 6.35%).
▪ Can show the $1,000 as lump sum or could show
materials cost as $106.35 plus labor charge of $893.65
plus sales tax on services of $56.75.
▪ Under “erroneous” approach, customer could apply for
refund for being taxed on materials.
50
EQUIPMENT RENTAL OR SERVICE CONTRACT?
The rental of equipment is a taxable transaction, whereas only certain services
are taxable.
The terms of the contract, not the billing method, determine if the transaction is
for equipment rental or for a service.
Service Contract
A contract is for service if the equipment owner:
▪ Is hired to do a specific job;
▪ Maintains complete control over the equipment; and
▪ Retains discretion over how and when to perform the job.
Equipment Rental
When the owner is merely supplying equipment, with or without operators, to a
certain site, and the customer controls how and when to perform the contract, the
contract is for the rental of equipment.
51
Purchasing Services
When a contractor purchases a service while engaged in a
contract, the contractor must determine if the service will be
consumed or resold.
Do not assume a contract with an exempt entity means all
services can be bought exempt from tax. Only those services
resold by the contractor can be purchased exempt from tax.
To purchase services for resale, contractor must issue a resale
certificate to the service provider.
52
Purchasing Services (continued)
Services can only be resold if they become an integral
and inseparable component of the service being
resold
Services consumed by the contractor cannot be
purchased for resale.
If the contractor is purchasing and consuming a
taxable service, the contractor must pay tax to the
seller of the service.
53
SN 2012(2): 2011 Legislative Changes to the Procedures
Governing Nonresident Contractors
Two classes of NRC’s
Verified—no bonding or holdback required
Unverified—subject to bonding or holdback if contract price for
entire project is $250K or more.
54
REQUIREMENTS OF NONRESIDENT CONTRACTORS SN 2012(2)
Verified contractor means a nonresident contractor or subcontractor who:
Is registered for all applicable taxes with DRS;
Has filed all required tax returns with DRS;
Has no outstanding tax liabilities to DRS; and
Has submitted a Form AU-960, Nonresident Contractor Request for
Verified Contractor Status, and has been verified by DRS to meet the
above requirements, plus either:
▪ Has been registered for all applicable taxes with DRS for at least
three years preceding the contract; or
▪ Posts with DRS a good and valid verification bond using Form AU961, Verification Bond.
Unverified contractor means a nonresident contractor or subcontractor
who is not a verified contractor.
55
REQUIREMENTS OF NONRESIDENT CONTRACTORS SN 2012(2)
Certificate of compliance means a certificate issued to
an unverified subcontractor by DRS, exonerating the
subcontractor from sales or use taxes owed by the
subcontractor and any income tax withholding owed by
the subcontractor, but only to the extent that these taxes
arise from the activities of the subcontractor on the
project for which the certificate was required.
56
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
Nonresident contractor means a contractor who does not
maintain a regular place of business in Connecticut.
Person doing business with a nonresident contractor means any
person who enters into a contract with a nonresident contractor,
and includes, but is not limited to, property owners,
governmental, charitable or religious entities, and resident or
nonresident general contractors or subcontractors.
57
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
Regular place of business:
Any bona fide office, factory, warehouse, or other
space in Connecticut at which a contractor is doing
business in its own name in a regular and systematic
manner; and
Which place is continuously maintained, occupied ,
and used by the contractor in carrying on its business
through its employees regularly in attendance to carry
on the contractor’s business in the contractor’s own
name
58
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
A regular place of business does not include:
A place of business for a statutory agent for service of
process or a temporary office whether or not it is located at
the site of construction;
Locations used by the contractor only for the duration of
the contract, such as short-term leased offices,
warehouses, storage facilities, or facilities that do not have
full time staff with regular business hours; or
An office maintained, occupied, and used by a person
affiliated with a contractor is not considered a regular place
of business of the contractor
59
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
Commencement of the contract:
▪ The time when the nonresident contractor signs the
contract, but no later than when the work actually starts.
If a change order is made after the commencement of
the original contract, it commences when it is signed by
the nonresident contractor, but no later than when the
work under the change order actually starts
Completion of the contract:
▪ The time when the nonresident contractor makes the
final periodic billing for the contract. Note that the final
periodic billing may be due before payment of any
retainage becomes due. If a change order is made after
the final periodic billing for the original contract, the
change order is complete when the nonresident
contractor bills for the change order
60
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
Customer of an Unverified Prime or General Contractor:
The customer of an unverified prime or general contractor
must obtain proof that the contractor has posted a surety
bond with DRS. Failure to do so leaves the customer liable
for payment of any sales and use taxes and any income tax
withholding owed by the unverified contractor arising from the
activities of the contractor on the project, up to 5% of the
contract price required to be paid to the unverified contractor.
However, compliance does not relieve the customer of the
customer’s liability for use taxes due on purchases of
services from the unverified contractor.
61
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
Unverified Prime or General Contractor Must File a Bond: An
unverified prime or general contractor must file a surety bond
with DRS in an amount equal to 5% of the contract price.
DRS has issued Form AU-964, Surety Bond and Release,
which must be used to post that bond.
DRS will release the surety bond once the contract is
complete and the unverified prime or general contractor
establishes that it has paid all taxes it owes in connection
with the contract and that its unverified subcontractors have
paid all of the taxes that they owe in connection with the
contract.
62
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
Otherwise, DRS will release the surety bond once the contract is complete
and the unverified prime or general contractor establishes that it has:
Paid all taxes it owes in connection with the contract;
Held back an amount equal to 5% of the payments being made
by the contractor in connection with the contract to its unverified
subcontractors; and
Paid over amounts held back from unverified contractors to the
extent that DRS has issued certificates of compliance for full or
partial release of such amounts, and remitted to DRS any
amounts held back that have not been authorized by DRS to be
released to the unverified contractors.
63
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
Hold Backs Required by All Prime or General Contractors from
Payments to Unverified Subcontractors: Prime or general
contractors, whether resident, verified, or unverified, doing business
with unverified subcontractors on projects over $250,000 must hold
back an amount equal to 5% of the payments required to be made
to the subcontractor until the subcontractor provides a Certificate of
Compliance authorizing full or partial release of the amount held
back.
The prime or general contractor must provide notice of the
requirement to hold back to the unverified subcontractor not later
than the time of commencement of work under the contract by the
subcontractor.
64
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
The amount held back from unverified subcontractors is
deemed to be held in a special fund in trust for the state.
An unverified subcontractor does not have any right of
action against a prime or general contractor with respect
to any amount held back in compliance or intended
compliance with NRC rules.
65
REQUIREMENTS OF NONRESIDENT CONTRACTORS (continued)
Release or Remittance of Amounts Held Back: When all work is
completed under a contract, the amount held back will be released
to the unverified subcontractor or remitted to DRS depending on the
following:
Unverified subcontractor DOES submit Form AU-967, Request
for Certificate of Compliance, to DRS:
An unverified subcontractor requests DRS to issue Form AU-968
by submitting Form AU-967. DRS will review the request in the
context of generally accepted construction industry cost
guidelines for the scope and type of construction project. DRS
will issue one of the following not later than 120 days after Form
AU-967 and all required documents are received:
66
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
Certificate of Compliance (AU-968):
If DRS issues Form AU-968, to the unverified
subcontractor and the prime or general contractor
authorizing full or partial release of held back
amounts, the prime or general contractor must pay
over the released amount to the subcontractor and
must remit any unreleased amount to DRS. The prime
or general contractor remits the unreleased amount
on its first SUT return due after the issuance of the
Certificate of Compliance.
67
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
Denial of Certificate of Compliance and Remittance of
Holdback (AU-970):
If DRS denies the request a Form AU-970, Denial of
Certificate of Compliance and Remittance of Holdback, will
be issued to the unverified subcontractor and the prime or
general contractor. The prime or general contractor must
remit the total amount held back to DRS on its first SUT
return due after the issuance of the Denial of Certificate of
Compliance and Remittance of Holdback.
68
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
Unverified subcontractor DOES NOT submit Form AU967 to DRS.
If the unverified nonresident subcontractor does not
submit Form AU-967 to the prime or general contractor
for endorsement within 90 days of the completion date,
then the prime or general contractor must remit the
amount held back to DRS on its first SUT return due
after the 90 day period following the completion of the
contract.
69
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
The calculation used to arrive at the amount to be
included on Form OS-114, Line 6 is:
Amount Held Back
.0635
= Taxable Amount to be included on Line 6
Example: If the Total Contract Amount is $300,000, then
the Amount Held Back is $15,000 (300,000 X .05).
The amount to be included on Line 6 is $236,220.47
(15,000 / .0635).
70
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
The prime or general contractor will not be liable for any claim
by DRS for taxes of the unverified subcontractor arising from
the activities of the subcontractor on the project when the
prime or general contractor pays over to the subcontractor
the amount authorized by the Form AU 968. Furthermore,
when the prime or general contractor pays over to DRS the
unreleased hold back amount, the prime or general
contractor will not be liable for any claim by the subcontractor
for the amount paid over to DRS.
71
•
REQUIREMENTS OF NONRESIDENT CONTRACTORS
(continued)
The prime or general contractor doing business with the
nonresident contractor must keep supporting
documentation with the tax return on which it was
reported. If the prime or general contractor fails to timely
remit to DRS any amount that was unclaimed by, or not
released by DRS to the unverified subcontractor, the
prime or general contractor will be subject to applicable
interest and penalties.
72
Not all services are taxable in CT, and within each type of
taxable service there may be exemptions or exclusions
(consider exemption certificate requirement).
It is the “nature of the service” and not what it is called that
determines its taxability. Determine the “true-object.”
Sales tax is generally due to the state on the accrual basis
(when the service is rendered) and not when the tax is
collected from the customer.
Service contracts should address sales taxability and
indemnification.
73
Consider unbundling taxable services from non-taxable
services on the invoice as well as in service contracts.
Taxation of services occurs in CT if the benefit of the service
is enjoyed in CT.
Determine if contractors are “non-resident.”
Consider whether you have nexus in states that would
require you to register for use tax collection on taxable
services that you render for a customer in that state.
74
Review Your Nexus Footprint
CT and other states (registration and compliance requirement)
Review Significant Service Contracts
Not what is the service “named” but what is the service?
Is sales tax specifically addressed in the contract?
Review Significant Invoices from Service Providers
Is sales tax being properly charged (use tax being remitted)?
Are non-taxable services separately stated from taxable services
on the invoice?
Determine Sales and Use Tax Exposure
Consider voluntary disclosure agreements
Determine Sales and Use Tax Overpayments
Consider claiming refunds
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Doug Joseph
BlumShapiro & Company, P.C.
29 South Main Street, PO Box 272000
West Hartford, CT 06127-2000
Phone: 860-561-6829
Fax: 860-726-7729
www.blumshapiro.com
[email protected]
76
Tony Switajewski
BlumShapiro & Company, P.C.
29 South Main Street, PO Box 272000
West Hartford, CT 06127-2000
Phone: 860-561-6810
Fax: 860-726-7710
www.blumshapiro.com
[email protected]
77