We are constructing a new, single-user office building in Ohio for an important international client. Our client requested that, as part of the contract, we directly purchase and install fancy furniture, portable storage units and cutting edge conference room audio/video equipment geared to their business and available to move with them down the road. After we installed the items, we submitted a pay application, with sales tax added on. Now the client is upset and feels the sales tax is our problem. We disagree. We just know the tax man will come a knockin’.
~Rock and Hard Place
First and foremost, the good news: You are right! Don’t you love being right? Intuitively, it is fair and reasonable for you to pass along to your client the sales tax payments you graciously advanced.
Rock, you are looking good!
Most of the “work” on construction contracts involves the improvement of real property. However, we all know that those TV’s and sleek furnishings are probably not real property. Thus, you must charge the sales tax unless you are feeling very generous or your client presents one or more of the many available exemptions.
The tax is due and the tax man will come but: IT IS NOT YOUR PROBLEM!
Now for the paradox. IT IS YOUR PROBLEM.
You are wrong for being right because your important international client doesn’t want to pay the Ohio sales tax on the TV’s and nice couches. Certainly it is not uncommon for furnishings to be wrapped up into a construction contract. Many building owners aren’t as experienced in the sales tax side of the contract as you are, Rock. If you want your client to be clear about the tax liability, YOU must make it so. Don’t assume your client knows the inner workings of the contract. Show them the exact language relating to sales taxes. Give them a draft copy of your proposed invoice, BEFORE you place the order. The Owner won’t be able to play naïve and you can enjoy being right, Rock.