Wednesday, June 5, 2013

Contractors shouldn?t collect LOT

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    The article in the Friday, May 24, edition of the Mountain Express entitled “Contractor: Ketchum and Tax Commission rules don’t jive” contained a photo caption which read: “One local contractor believes he shouldn’t have to pay the local option tax on building materials”. That caption completely misrepresented the subject of the discussion, which was not the validity of the local-option tax (LOT), it being applied to building materials, or who should pay it.  The issue under discussion was who is responsible for assessing, collecting and remitting the tax to the city of Ketchum.
    Idaho law defines a contractor improving real property as the consumer of the goods purchased for the purpose, whether or not the goods are resold (Idaho Code 63-3609).  This means that sales tax must be charged to such contractors when they buy materials to improve real property. There’s a simple reason for this: Since improvements on real property are not subject to sales tax when the property is sold, the sales tax is captured at the time the building materials are sold to the various contractors who construct the improvements.  The cost of the sales tax must be incorporated into contractors’ pricing, and cannot be added to the bill as sales tax, because contractors improving real estate are prohibited from charging sales tax.
    The city of Ketchum has been classifying contractors improving real property as resellers/retailers, requiring an active sales-tax permit, and imposing upon them the duty of assessing, collecting and remitting the local sales tax.  This is how it works for retail merchants, but these requirements are unquestionably contrary to the state law that defines contractors improving real estate as consumers. While consumers pay the sales tax, the duty of assessing, collecting and remitting the tax is solely the responsibility of the sellers; contractors have no such duty.
William Glenn
Ketchum

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