§ 31.12. Imposition of tax.
(a) Construction activities. Imposition of tax on construction activities shall conform with the following:
(1) A contractor shall pay tax upon the purchase price, as defined by the TRC, of all property, including materials, equipment, components and supplies, which he furnishes and installs in the performance of his construction activities.
Example 1: As part of a contract for the construction of a house ‘‘X’’ Contractor has agreed to install a built-in dishwasher for his customer. ‘‘X’’ Contractor pays his supplier $150 for the purchase of the dishwasher. ‘‘X’’ Contractor pays $9 sales tax to his supplier and subsequently installs the dishwasher in the kitchen of the house he is building. The dishwasher becomes a part of the realty and is included in the overall price of the house to the customer. ‘‘X’’ Contractor does not charge sales tax on this transaction to his customer. The contractor may include the tax he must pay in his bid proposal but not as a separately stated item.
(2) A contractor whose activities are confined to construction activities is required to pay tax directly to his supplier at the time he purchases the materials, equipment, components or supplies which he furnishes and installs. A use tax license number shall be available to a construction contractor from the Department to permit him to remit tax directly to the Department upon the purchases from vendors who are not required or are not licensed with the Department for the collection and remission of tax.
Example 1: ‘‘X’’ Contractor purchases lumber in Baltimore, Maryland, which is delivered in Pennsylvania. The lumber supplier is not registered with this Commonwealth to collect sales tax of this Commonwealth. ‘‘X’’ Contractor shall be required to remit use tax on his ‘‘purchase price’’ (including shipping charges) of the lumber directly to the Department under his use tax number. See § 33.2 (relating to purchase price).
Example 2: ‘‘X’’ Contractor purchases and takes possession of lumber in Baltimore, Maryland. At the time of purchase the Maryland rate of tax is 4%. ‘‘X’’ Contractor pays to his supplier 4% tax. Maryland and the Commonwealth have enacted reciprocal tax statutes. Because of this reciprocity, ‘‘X’’ Contractor may take a 4% tax credit against the use tax of the Commonwealth which he owes. ‘‘X’’ Contractor shall be required to remit 2% use tax on his ‘‘purchase price’’ of the lumber directly to the Department under his use tax number.
(3) A construction contractor shall pay tax upon all tools and equipment, such as backhoes, cranes, saws, drills, motor vehicles, and the like, which are used but not transferred in conjunction with his construction activities. Effective March 4, 1971, a construction contractor performing contracts for public utilities may no longer claim the exemption of the utility upon the purchase or rental of such items.
(4) A contractor who performs both construction activities and sales activities shall be required to be licensed with the Department for the collection and remission of sales tax and shall be issued a sales tax license number. As to property which he knows he will resell, he may use a resale exemption certificate upon his purchase from his supplier. He shall collect and remit tax upon the sales. As to all other purchases which he may make, he shall pay tax to his supplier at the time of purchase.
(b) Sales activities. Imposition of tax on sales activities shall conform with the following:
(1) A contractor who, in addition to performing construction activities, makes sales at retail, as defined by the TRC, of tangible personal property is deemed to be a vendor and is required to register with the Department for the collection and remission of tax upon the sales which he makes.
(2) A contractor who performs taxable services in repairing and altering tangible property or applying or installing tangible personal property as a repair or replacement part of other personal property is also deemed to be a vendor and is required to collect and remit tax. See § 31.5 (relating to persons rendering taxable service).
(3) Effective March 4, 1971, charges for labor or transportation in conjunction with the sale at retail and installation of tangible personal property are subject to tax even though the labor or delivery charges are separately stated on the billing.
Example 1: ‘‘X’’ Contractor, who has been issued a sales tax number, purchases a portable dishwasher which is delivered to the house ‘‘X’’ Contractor is building for ‘‘Y’’ Customer. ‘‘X’’ Contractor purchases the dishwasher for $150 from his supplier and gives him a resale exemption certificate. ‘‘X’’ Contractor then charges ‘‘Y’’ Customer $200 for the dishwasher, including delivery, unpacking and installation charges. ‘‘X’’ Contractor shall collect $12 sales tax from ‘‘Y’’ Customer based upon the total sales price of $200.
(c) Contractors producing the property they consume, as part of the same business operation. Contractors who, as part of the same business operation, produce the property they consume shall conform with the following:
(1) A contractor, in addition to performing construction activities, may also manufacture, mine, process or grow the materials, supplies or equipment which he consumes in the performance of his construction activities. With respect to his manufacturing, mining, processing, and the like, operations, the contractor is entitled to the exemption provided by the law for the operations.
(2) With respect to construction activities, the contractor’s use tax base is the acquisition cost of the raw material purchased to produce the property which he consumes.
Example: A contractor purchases seedlings for $2 which he grows and later transfers to his customer in conjunction with his construction activities. At the time of transfer, the seedlings have a market value of $50. The contractor, however, is required to pay tax upon the $2 cost of the seedlings which he paid at the time of their acquisition.
Source The provisions of this § 31.12 adopted April 14, 1972, effective April 14, 1972, 2 Pa.B. 667.
Notes of Decisions Exemption
The manufacturing exclusion of subsection (c)(1) does not apply to materials used in construction and affixed to real estate. That is consistent with the statutory definition of ‘‘manufacture.’’ Golden Eagle Construction Co. v. Commonwealth, 813 A.2d 13 (Pa. Cmwlth. 2002); affirmed 834 A.2d 1103 (Pa. 2003).
‘‘Use’’ of Materials
Where the taxpayer uses raw materials as part of its paving activities, the activity is not considered ‘‘sale at retail,’’ and, since the materials are incorporated into and made a part of real estate, the materials are considered ‘‘used’’ and not ‘‘sold.’’ Golden Eagle Construction Co. v. Commonwealth, 813 A.2d 13 (Pa. Cmwlth. 2002); affirmed 834 A.2d 1103 (Pa. 2003).
Cross References This section cited in 61 Pa. Code § 31.11 (relating to definitions); 61 Pa. Code § 46.3 (relating to construction contractor installing stained glass windows); 61 Pa. Code § 46.7 (relating to nonresident contractors); and 61 Pa. Code § 46.8 (relating to industrialized housing).
No part of the information on this site may be reproduced for profit or sold for profit.
This material has been drawn directly from the official Pennsylvania Code full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.
