When it comes to fencing projects…
On occasion, we get questions related to sales tax billing and sales tax exemptions.
You may be wondering:
- Can my sales tax exempt status be used to save cost on my project?
- Is fence installation labor taxable?
- Does Empire Fence itemize sales tax on the invoice?
In this post…
We will answer these questions and others related to sales tax for fencing projects.
INFORMATIONAL PURPOSES ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party. Before making any decision or taking any action, you should consult with professional advisors.
Sales Tax Basics for Fencing Contractors
The construction industry includes businesses that improve real property by building homes and structures, building fence, making repairs, etc.
In most states, contractors do not collect sales tax on the services they provide, but they do pay sales tax on the supplies they purchase to complete each job.
The sale of materials and supplies to contractors is covered under Oklahoma Administrative Code Title 710:65-7-13 – Vendors’ responsibility – sales to contractors.
The entire text of these rules is posted at the bottom of this article for your reference.
Within these rules, “Contractors are defined by statute as consumer/users and must pay sales tax on all taxable services and tangible personal property, including materials, supplies, and equipment purchased to develop, repair, alter, remodel, and improve real property.”
This means that contractors (including fencing contractors) pay sales tax for materials used on the job at the time of purchase.
Contractors are considered the “consumer/user” of the supplies used in construction projects.
So, for the typical fencing project installed by Empire Fence, we have already paid the required sales tax, since we are considered the consumer/user of the supplies needed.
Because we have already paid sales tax, we are not required to collect or remit sales tax separately for materials used on your job.
Additionally, most services including installation services, are not taxable in Oklahoma.
For those reasons, you won’t see sales tax itemized on your bill.
This is common practice used by construction contractors in Oklahoma.
Can my Tax Exempt Status be Used to Save Cost on my Project?
This is a great question.
While your sales tax exempt status may help save cost for many common purchases.
The rules for using this status to purchase construction materials are very restrictive and are cost prohibitive for fencing projects in most circumstances.
Here’s why.
According to the rules, there are limited exceptions to the requirement that contractors pay sales tax on supplies used in construction projects.
The list of qualifying entities is very narrow, while allowing some to qualify.
However.
To qualify for tax exempt status, materials used for that job must be purchased individually for the job on a separate purchase order with rigorous documentation at every step of the process.
Because we normally buy in bulk – often in truckload quantities – our customers save on material costs afforded to that purchasing power.
For typical fencing jobs, we use in-stock materials that we have purchased in bulk.
If we need to order a set of materials for a specific tax exempt job, many times the price for materials on that job end up being higher because of changes to current market prices, freight for those materials, and reduced supplier discounts for non-bulk purchases.
The increased cost for materials (even without sales tax) usually outweighs any potential tax savings the qualifying entity would have received.
In addition to that.
During periods where our suppliers have long lead times, your project could be delayed by several weeks as we wait for the job-specific materials to arrive at our location.
While this is normally the case, it’s not always the case.
If you do want to explore the possibility of using your tax exempt status…
We need to know before the project is bid, so we can check current market prices and review the documentation process with you.
Below is the full text of Oklahoma Administrative Code dealing with this topic.
As always, let us know if you have any further questions!
Oklahoma Administrative Code 710:65-7-13
Vendors’ responsibility – sales to contractors
(a) General rule. Contractors are defined by statute as consumer/users and must pay sales tax on all taxable services and tangible personal property, including materials, supplies, and equipment purchased to develop, repair, alter, remodel, and improve real property.
(b) Limited exceptions. A contractor may make purchases based upon the exempt status of another entity only in the statutorily-limited circumstances described in this paragraph.
(1) A contractor who has a public contract, or a subcontractor to that public contract, with an Oklahoma municipality, county, public school district, an institution of the Oklahoma System of Higher Education, a rural water district, the Grand River Dam Authority, the Northeast Oklahoma Public Facilities Authority, the Oklahoma Municipal Power Authority, the City of Tulsa-Rogers County Port Authority, the Broken Bow Economic Development Authority, the Muskogee City-County Port Authority, the Oklahoma Ordnance Works Authority, the Durant Industrial Authority, the Ardmore Development Authority, the Oklahoma Department of Veterans Affairs, the Central Oklahoma Master Conservancy District, or Department of Central Services only when carrying out a public construction contract on behalf of the Oklahoma Department of Veterans Affairs may make purchases of tangible personal property or services, which are necessary for carrying out the public contract, exempt from sales tax.
(2) A contractor who has entered into a contract with a private institution of higher education or with a private elementary or secondary institution, may make purchases of tangible personal property or services, including materials, supplies and equipment used in the construction of buildings owned and used by the institution for educational purposes exempt from sales tax. However, the institution must be registered or accredited with the Oklahoma State Regents for Higher Education, the State Board of Education, or the State Department of Education.
(3) A contractor who has contracted with an agricultural permit holder to construct a facility which will be used directly in the production of any livestock, including facilities used in the production and storage of feed for livestock owned by the agricultural permit holder, may make purchases of materials, supplies and equipment necessary to fulfill the contract, exempt from sales tax. [See: OAC 710:65-7-11]
(4) A contractor may make purchases exempt from sales tax for use on campus construction projects for the benefit of institutions of the Oklahoma State System of Higher Education or private institutions of higher education accredited by the Oklahoma State Regents for Higher Education. The projects must be financed by or through the use of nonprofit entities which are exempt from taxation pursuant to Section 501(c)(3) of the Internal Revenue Code. Contractors claiming exemption for purchases to be used in a qualified campus construction project should obtain a letter certifying the exemption status from the Tax Commission by following the procedures set out in 710:65-13-210, and provide a copy of the letter to vendors, pursuant to subsection (g) of that rule. [See: 68 O.S. §1356(41)]
(5) A contractor may make purchases of machinery, equipment, fuels, and chemicals or other materials, exempt from sales tax, which will be incorporated into and directly used or consumed in the process of treatment of hazardous waste, pursuant to OAC 710:65-13-80. Contractors claiming exemption for purchases to be used to remediate hazardous wastes should obtain a letter certifying the exemption status from the Tax Commission by following the procedures set out in 710:65-13-80, and provide a copy of the letter to vendors, pursuant to subsection (f) of that rule.
(6) A contractor, or a subcontractor to such contractor, with whom a church has duly entered into a construction contract may make purchases of tangible personal property or services exempt from sales tax which are necessary for carrying out such construction contract.
(7) A contractor, or a subcontractor to such contractor, may make purchases of tangible personal property which is to be consumed or incorporated in the construction or expansion of a facility for a corporation organized under Section 437 et seq. of Title 18 of the Oklahoma Statutes as a rural electric cooperative exempt from sales tax. Contractors claiming exemption for purchases to be used in a qualified rural electric cooperative project shall follow the procedures set out in OAC 710:65-13-124.
(8) A contractor, or a subcontractor to such contractor, may make purchases of tangible personal property or services pursuant to a contractual relationship with a child care center, qualified for exemption pursuant 68 O.S. § 1356(69), for construction and improvement of buildings and other structures owned by the child care center and operated for educational purposes exempt from sales tax.
(9) A contractor, or a subcontractor to such contractor, may make purchases of tangible personal property or services exempt from sales tax pursuant to a contractual relationship with a manufacturer for the construction and improvement of manufacturing goods, wares, merchandise, property, machinery and equipment for use in a manufacturing operation classified under NAICS No. 324110 (Petroleum Refineries).
(c) Documentation required for limited exceptions. In the case of a sale to a contractor claiming exemption pursuant to subsections (b)(1), (b)(2), (b)(6) ,(b)(8), or (b)(9) of this Section, the vendor must obtain:
(1) A copy of the exemption letter or card issued to one of the entities described in (b) of this Section;
(2) Documentation indicating the contractual relationship between the contractor and the entity; and,
(3) Certification by the purchaser, on the face of each invoice or sales receipt, setting out the name of the exempt entity, that the purchases are being made on behalf of the entity, and that they are necessary for the completion of the contract.
[Source: Added at 18 Ok Reg 2823, eff 6-25-01; Amended at 19 Ok Reg 1859, eff 6-13-02; Amended at 21 Ok Reg 2581, eff 6-25-04; Amended at 22 Ok Reg 1561, eff 6-11-05; Amended at 24 Ok Reg 2397, eff 6-25-07; Amended at 25 Ok Reg 2070, eff 7-1-08; Amended at 26 Ok Reg 2354, eff 6-25-09; Amended at 27 Ok Reg 2308, eff 7-11-10; Amended at 29 Ok Reg 542, eff 5-11-12]
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