Tax Guide for Construction Contractors
Specific Jobs

Lump-Sum Contracts

Asphalt – Installing Materials

Spencer is a construction contractor in Fresno who supplies asphalt and concrete to homeowners and businesses. He pays sales tax on his purchases of concrete and asphalt from his supplier in Bakersfield, who delivers the products to Spencer's jobsites.

Spencer's contracts with his customers are lump-sum contracts, in which he agrees to provide and spread the asphalt or concrete at the jobsite specified in the contract. He is doing more than simply delivering the materials to the jobsite; in spreading the asphalt or concrete, Spencer is making improvements to real property.

Concrete and asphalt are generally considered under the Sales and Use Tax Law to be materials. As a construction contractor, Spencer is the consumer of materials he furnishes and installs in the performance of construction contracts. As a consumer, Spencer owes sales tax on the purchase price of the materials he purchases from his supplier, and does not bill his customers for sales tax.

For more information, see publication 9, Construction and Building Contractors.

Counter Tops – Installing Materials

Jorge is a construction contractor who installs custom granite counter tops for his customers, usually homeowners and restaurants. He purchases the counter tops from the manufacturer, who pre-cuts them to his specifications and delivers them to his jobsites.

Jorge prefers to use lump-sum contracts with his customers. He knows that in most cases the granite he installs is considered materials, because it loses its identity as a separate component when installed.

Jorge is construction contractor who furnishes and installs materials for his customers under lump-sum contracts. Jorge doesn't pay any sales tax when he purchases the granite from his out-of-state supplier, so he pays use tax to the state based on the purchase price of the granite and the tax rate in effect at his jobsite.

For more information, see publication 9, Construction and Building Contractors.

Flooring – Installing Materials

Bruno is a construction contractor who installs wood and laminate flooring in his customer's homes, using lump-sum contracts.

Bruno knows that as a construction contractor he is generally regarded to be the consumer of materials and the retailer of fixtures he provides and installs in the performance of his contracts. He knows that the items he uses in his contracted jobs – laminate, linoleum, padding, and baseboard – are all considered to be materials under the Sales and Use Tax Law.

Bruno pays sales tax for his materials at the time of purchase from his supplier. Having paid sales tax, Bruno has no additional tax liability unless his jobsite is located in an area with a tax rate higher than that where the materials were purchased. Bruno has bookmarked the CDTFA's webpage of city and county tax rates, so he always knows the tax rate in effect at his jobsite.

For more information, see publication 9, Construction and Building Contractors.

A comprehensive listing of city and county tax rates can be found here: California City & County Sales & Use Tax Rates

Landscaping – Installing Fixtures and Materials

Brian is a construction contractor who, under contract, designs and landscapes gardens. He uses lump-sum contracts, and purchases plants, trees, sod and flowers from his local supplier, who delivers the items directly to Brian's jobsite.

Brian knows that as a construction contractor, he is the consumer of materials and the retailer of fixtures that he provides and installs in the performance of his construction contracts. He knows that under the Sales and Use Tax Law, trees, shrubs, sprinkler heads, and control boxes are considered fixtures, while sod, flowers, and PVC pipe are considered to be materials.

Brian paid sales tax to his supplier on all his purchases needed for his contracted jobs. Brian knows that when he uses a lump-sum contract, the selling price of fixtures is deemed to be the cost price.

Because Brian paid sales tax on his purchase of materials and fixtures and uses a lump-sum contract, he has no further tax to report unless his jobsite is located in an area with a tax rate higher than that where the materials and fixtures were purchased. If the jobsite is in an area with a higher tax rate, Brian owes the difference between the higher and lower rates.

For more information, see publication 9, Construction and Building Contractors.

Shutters and Blinds – Installing Fixtures and Materials

Kathryn is a construction contractor who installs movable shutters, venetian blinds, and shades for residential customers using lump-sum contracts.

Kathryn knows that movable shutters, venetian blinds, and shades are all considered fixtures under the Sales and Use Tax Law. She knows that the screws and fasteners she uses are considered to be materials. She knows that under the law she is considered to be the retailer of fixtures and the consumer of materials she provides and installs in the performance of her lump-sum construction contracts.

Kathryn paid sales tax on all her purchases of fixtures and materials needed for her contracted jobs.

Under a lump-sum contract, the cost price of fixtures is considered the selling price. Since Kathryn has paid sales tax to her vendor for her purchases of materials and fixtures, she does not owe additional tax unless her jobsite is located in an area with a tax rate higher than that where the materials and fixtures were purchased. If the jobsite is in an area with a higher tax rate, Kathryn owes the difference between the higher and lower rates.

Kathryn has bookmarked the CDTFA's webpage of city and county tax rates, so she always knows the tax rate in effect at her jobsite.

For more information, see publication 9, Construction and Building Contractors.

A comprehensive listing of city and county tax rates can be found here: California City & County Sales & Use Tax Rates

Solar Panels – Installing Fixtures and Materials

Brandon is a construction contractor in Sacramento who installs rack mounted solar panels and free-standing solar arrays for his customers. He prefers to use lump-sum contracts because he feels they simplify his tax reporting.

Brandon purchases solar panels, disconnect boxes, inverters, and transformers tax-paid from a local supplier who delivers them directly to his jobsite. He purchases wire, wire harnesses, strapping, and piping from a local hardware store, paying sales tax on his purchases.

Brandon's most recent contract was for installing rack-mounted solar panels on the roof of a customer's home in San Bruno.

Brandon knows that rack-mounted solar panels, AC and DC disconnect boxes, inverters, and transformers are considered fixtures. He knows that wire, wire harnesses, strapping, and piping are considered materials. Having read CDTFA publication 9, he knows that under the Sales and Use Tax Law he is considered to be the consumer of materials and the retailer of fixtures he provides and installs in the performance of his construction contracts.

Brandon has paid taxes on all his purchases. Since he is using a lump-sum contract, he would have no additional tax to report if the required materials were used in an area where there is no district tax or where the district tax rate is lower than that of Sacramento, which has a tax rate of 8.25 percent.

San Bruno, however, has a tax rate of 8.75 percent. Brandon knows that the jobsite is the place of use for materials and the place of sale for fixtures, and so he is responsible for paying the additional .5 percent in taxes on the cost of the materials and fixtures to him.

Note: Rates in this example were effective 10/01/2017, rates are subject to change.

For more information, see publication 9, Construction and Building Contractors.

Time and Material Contracts

Custom Cabinets – Installing Fixtures

Francine is a construction contractor who installs custom kitchen cabinets for her customers, typically homeowners. She always uses time and material contracts with her clients. She purchases the materials needed to fabricate the cabinets from her local supplier, issuing a resale certificate at the time of purchase so that the supplier does not charge her sales tax.

Francine knows that, under the Sales and Use Tax Law, she is considered to be the retailer of fixtures she furnishes and installs under a time and material construction contract. She also knows that since at least 90 percent of the total cost of labor and materials needed to produce the kitchen cabinets are incurred prior to installation, the cabinets are considered to be “prefabricated” and “fixtures”.

As a retailer of the fixtures she furnishes and installs for her customers, Francine owes sales tax based on the billed price of the prefabricated kitchen cabinets.

For more information, see publication 9, Construction and Building Contractors.

Roofing – Installing Materials

Antonio is a construction contractor who uses time and material contracts with his customers for installing aggregate shingles and tile roofs on residential properties. His contracts always show separate charges for materials and labor.

Antonio knows that as a construction contractor, he is the consumer of materials he provides and installs in the performance of his contracts. He knows that under the law, the items he uses – roofing paper, nails, shingles and tiles – are all considered materials.

As a consumer of materials, Antonio knows that he should not issue a resale certificate when purchasing them, and so he pays sales tax to his supplier. Having read CDTFA publication 9, Antonio never bills his customers for sales tax on his marked-up and separately stated price of materials.

Having paid sales tax to his suppliers for his purchase of materials, Antonio has no additional tax liability unless his jobsite is located in an area with a tax rate higher than that where the materials were purchased. Antonio has bookmarked the CDTFA's webpage of city and county tax rates, so he always knows the tax rate in effect at his jobsite.

For more information, see publication 9, Construction and Building Contractors.

A comprehensive listing of city and county tax rates can be found here: California City & County Sales & Use Tax Rates