Publication 44, District Taxes (Sales and Use Taxes)
Construction Contractors

This section covers the general application of district taxes to construction contractors. This section may be useful if you make sales to construction contractors or if you are a contractor located or doing work in districts.

District tax generally applies to a construction contractor’s purchases in the same manner as the sales and use tax. However, there are certain exceptions, which are explained in the following sections. This section briefly summarizes the provisions that are common to both sales and use tax and district tax and then discusses the specific district tax provisions.

Tax provisions common to both sales and use tax and district tax

Under both the sales and use tax and the district tax, construction contractors (other than those working under federal contracts) are generally:

• Consumers of materials furnished and installed on real property, such as lumber, cement, roofing, windows, and wall-to-wall carpeting. As consumers, contractors generally should pay sales tax to their vendors when purchasing materials or report use tax when the materials are installed on real property.
• Retailers of fixtures furnished and installed on real property, such as air conditioning units, lighting and plumbing fixtures, and blinds. Contractors should pay tax to us on the sale of fixtures to their customers in a time-and-materials contract. Or, if installing the fixtures on a lump-sum contract, contractors should pay sales or use tax on the cost of the fixtures. If the contractor manufactures the fixture, the selling price is considered the price at which similar fixtures are sold or the price reflected by the contractor’s records, such as bid sheets or costing sheets.
• Retailers of machinery and equipment such as drill presses, lathes, and movable partitions. Contractors should charge and pay tax measured by the selling price of these types of items to their customers.

In contrast, construction contractors working on contracts with the federal government (also known as United States construction contractors) are considered the consumers of both materials and fixtures. In addition, a United States construction contractor’s sale of equipment to the federal government is generally considered an exempt retail sale.

For more information about the application of sales and use tax to construction contractors and a more complete listing of property qualifying as materials, fixtures, machinery, and equipment, see Regulation 1521, Construction Contractors, and publication 9, Construction and Building Contractors.

Construction contractors and district tax

In addition to the above criteria, district tax law provides that:

• Materials purchased before the effective date of a district tax and installed after that date may not be subject to the district tax.
• The contractor’s jobsite is considered the place of business for purposes of determining the applicable tax.
• Certain fixed-price contracts may be exempt from district taxes enacted after the contract date.

Consequently, to determine if a contractor’s sales or purchases are subject to district tax, you need to take into account the following:

• The date of purchase,
• The place at which the materials, fixtures, and equipment are delivered or installed, and
• Whether the construction contract qualifies as a fixed-price contract.

These points are discussed in more detail below.

Date of purchase

Materials purchased before the effective date of a district tax and installed after that date are not subject to the district tax. This exclusion, however, does not apply to materials purchased under a resale certificate when the materials are used for a purpose other than that stated on the certificate. It also does not apply to fixtures and equipment purchased under a resale certificate. Materials, fixtures, and equipment purchased under a resale certificate are generally subject to district tax if sold or consumed after the effective date of the district tax.

Delivery or installation location

As discussed in the previous section, the place of sale or place of first use determines whether district tax applies to a sale or purchase of tangible personal property. However, for materials not purchased under a resale certificate, district tax applies at the time of purchase. For purchases by construction contractors:

• District transactions (sales) tax applies when a contractor picks up materials or fixtures in a district even if the contractor intends to install them at a jobsite located outside the district.
• District use tax applies when materials or fixtures are installed at a jobsite in a tax district and they have been purchased without district tax or at a lower rate of district tax. Generally, the contractor is responsible for reporting and paying the tax.
• District tax will not apply if the sale occurs in a district, but the supplier ships the property to a location that is not in a taxing district where the property is installed.

The only exception to these general rules is certain purchases of fixtures. The law allows contractors a credit for district tax paid on fixtures that are subsequently installed at a location not in a taxing district.

For example, if you purchase air conditioning units in a district which has a total district tax rate of 1.5 percent and install them on a structure in a location which has no district taxes, you are eligible for a credit of the 1.5 percent district tax paid at the higher tax rate on the purchase of the air conditioning units.

Fixed-price construction contracts

As noted in District Taxes, purchases of materials, fixtures, and equipment under a qualified fixed-price contract are exempt from district tax increases. To qualify as an exempt fixed-price contract, a contract must:

• Be entered into prior to the effective date of the district tax,
• Be for a fixed amount,
• Have all parties obligated to the terms of the contract, and
• Have the sales tax amount or rate specifically stated in the contract.

This exemption also applies to the purchases which subcontractors make as part of a fixed-price prime contract. If you are unsure whether a construction contract qualifies as "fixed-price," you may request a review of the contract by your nearest CDTFA office.

Please note: The exemption allowed for the purchase of materials, fixtures, and equipment under a qualified fixed-price contract does not apply to purchases of supplies such as tools, scaffolding, or welding gases, which are used on the construction site. Supply purchases are only exempt if made under a fixed-price supply contract entered into directly with the supplier prior to the effective date of the district tax.

Construction contractors—Examples

If I am a contractor with a business in an area without district taxes and I install materials and fixtures that are delivered to a jobsite located in a district, am I liable for the district tax?

As a construction contractor, am I responsible for district tax on materials that I purchase prior to the operative date of a district tax and use after that date?

If I purchase construction materials after the effective date of a district tax, does district tax apply?

If I purchase construction materials and fixtures from a vendor in a district for use outside the district, does the district tax apply?

Credit against a use tax liability for materials purchased

If materials are purchased tax-paid in an area with district taxes, the person liable for the use tax may only claim a credit against a use tax liability that is equal to the district tax rate where the materials were installed (jobsite), but not at a tax rate exceeding the district tax where the materials were installed. Accordingly, if the contractor purchased materials, tax-paid, in a county with a total tax rate of 8.75 percent and installs the materials in a county with a tax rate of 8.25 percent, the contractor does not have an additional district use tax liability. In this example, the sale to the contractor is a sales tax transaction and the contractor is considered the consumer of materials and would not be entitled to a credit of the 0.50 percent district tax difference paid for the materials at the 8.75 percent tax rate.

If a contractor purchased materials tax-paid in a county with a district tax rate of 7.75 percent and installs the materials in a county with a district tax rate of 8.75 percent, the contractor is liable for the additional 1.00 percent district use tax. If the contractor has a seller’s permit, an adjustment can be made on Schedule A to allocate the district tax to the proper district of installation. If the contractor does not hold a seller’s permit or is not otherwise required by law to report use tax in a different manner, the additional use tax liability can be paid by providing, in writing, all the following information:

1. A request that the correspondence be accepted as a return or a statement, regardless of how brief, indicating that you are attempting to file a return, and
2. The reporting period for which the correspondence (return) is filed, and
3. The amount of tax due for each district.

Your total reported use tax should be segregated by district based on where the materials were installed. This will assist us in allocating the use tax to the proper district.

Contractors with ongoing use tax amounts due should apply for a California Consumer Use Tax Account. You can register by selecting Register for a Permit. Alternatively, you can register to report use tax in person at any of our local offices. You may also contact our Customer Service Center for assistance at 1-800-400-7115 (TTY:711).

Credit against a use tax liability for fixtures purchased

If fixtures are purchased by a contractor tax-paid in an area with district taxes, the contractor, upon installing the fixtures at a jobsite without a district tax or with a lower tax rate, is entitled to a credit for the full amount of the district tax of the district of purchase.

For more information about the application of district tax on sales to and purchases by construction contractors, see Regulation 1826, Construction Contractors, and publication 9, Construction and Building Contractors.

Revision June 2026