006.05.06 Ark. Code R. 005-GR-21

Current through Register Vol. 49, No. 10, October, 2024

Rule 006.05.06-005-GR-21 - PERSONS REQUIRED TO COLLECT AND REMIT TAX - SPECIFIC BUSINESSES - CONTRACTORS

A. DEFINITIONS.

1. "Consumer" or "user" means the person to whom the taxable sale is made or to whom the taxable services are furnished. All contractors are deemed to be consumers or users of all tangible personal property including materials, supplies, and equipment used or consumed by them in performing any contract, and the sales of all such property to contractors are taxable sales. The contractor must pay tax at the time of purchase or pay tax at the time the materials are withdrawn from stock for use in the performance of the contract.

A contractor cannot rely on the direct pay permit of the other party to the contract for payment of the tax on the construction materials.

2. "Contract" means any agreement or undertaking to construct, manage or supervise the construction, erection, alteration or repair of any building or other improvement or structure affixed to real estate, including any of their component parts. The term contract shall not include a contract to produce tangible personal property.

3. "Contractor" means any person who contracts or undertakes to construct, manage or supervise the construction, erection, alteration or repair of any building or other improvement or structure affixed to real estate, including any of their component parts.

B. NON-TAXABLE SERVICES AND SALES. The following represents services which are not subject to sales tax:

1. The initial installation, alteration, addition, cleaning (with exceptions noted in GR-21(C)(1)), refinishing, replacement, or repair of nonmechanical, passive or manually operated components of buildings or other improvements or structures affixed to real estate, including but not limited to the following: walls, ceilings, doors, locks, windows, glass, heat and air ducts, roofs, wiring, breakers, breaker boxes, electrical switches and receptacles, light fixtures, pipes, plumbing fixtures, fire and security alarms, intercoms, sprinkler systems, parking lots, fences, gates, fireplaces, and similar components which become a part of real estate after installation, are not taxable services. This means, generally, that services performed on non-mechanical components or fixtures within or on a building or other improvement to real estate are not taxable.

2. First-time installation of mechanical or electrical equipment into a newly constructed or substantially modified building or other improvement to real estate is not a taxable service. For example, labor charges for the first-time installation of heating and air conditioning machinery and heating and air ducts into a newly constructed or substantially modified building are not taxable. The initial installation of mechanical or electrical equipment into an existing building is taxable. See GR-21(D) for tax liability on materials.

3. First-time installation of carpeting or other flooring into a newly constructed or substantially modified building or other improvement to real estate is not a taxable service. The initial installation of carpet or other flooring in an existing building is taxable. See GR-21(D) for tax liability on materials.

C. TAXABLE SERVICES. (See GR-9 through GR-9.17 for additional taxable services.)

1. The services enumerated in Ark. Code Ann. § 26-52-301(3)(D) including the service of providing cleaning or janitorial work are taxable. The cleaning of the interior or exterior of any building or structure, including vents, ducts, windows, walls, ceilings, or floors, is a taxable service.

2. The initial installation, alteration, addition, cleaning, refinishing, replacement and repair of motors, electrical appliances, machines, and other mechanical items are taxable. For example, initial installation in existing structures and the repair or replacement of dishwashers, stoves, ovens, refrigerators, heating and air conditioning units, garbage disposals, water heaters, ceiling fans, garage door motors, electric signs, washing machines, and dryers is taxable.

3. The initial installation in existing buildings and the alteration, addition, cleaning, refinishing, replacement and repair of carpet and rugs remain taxable.

4. The replacement or repair of elevators is a taxable service.

D. TAXATION OF MATERIALS.

1. Permitted Business. A business holding a sales tax permit should purchase all materials used in its construction, repair, and retail business exempt from sales tax as sales for resale. Any materials used in the performance of non-taxable services are not taxed to the customer; however, the business must self-assess, report, and pay sales tax as a withdrawal from inventory (stock) on the purchase price of the materials. Tax is due at the time the goods are withdrawn from stock. (See GR-18.) The business must collect sales tax from its customers on retail sales of materials. Sales tax on materials used in performing taxable services is to be collected from the customer along with the labor charges.

2. Non-permitted Business. A business which is not required to hold a sales tax permit must pay tax on all purchases of materials. Use tax is required to be reported and paid on the purchase of materials from out-of-state sellers.

E. SPECIFIC BUSINESSES.

1. Heating and Air Contractors.

a. The original installation of heat and air ductwork in new or existing construction is not a taxable service. The initial installation of the mechanical or electrical components of heating and cooling units in new construction or substantially modified buildings is not a taxable service. The initial installation of mechanical or electrical components of heating and cooling units in existing construction is a taxable service. The contractor must either pay tax to the supplier on the materials and equipment used in the installation, or self-assess tax as a withdrawal from inventory (stock) on the purchase price of all materials including the heating and air units.

b. Subsequent repairs to or the replacement of the mechanical or electrical components of the system, e.g. the heating and air units or components, are taxable services. Any materials or parts used in the repairs or replacement are also taxable to the consumer.

c. Replacement or repair of heating and air ductwork is not a taxable service. The contractor must either pay tax to the supplier on the materials used in the work, or self-assess tax as a withdrawal from inventory (stock) on the purchase price of the materials used.

d. If the contractor repairs or replaces ductwork and repairs or replaces heating or air units, then unless the ductwork labor and material charges are separated from the heating or air unit labor and material charges, the entire charge for the work plus the cost of all materials will be taxable.

2. Plumbing. The installation, replacement or repair of pipes and non-mechanical plumbing fixtures are not taxable services. The plumbing contractor is to pay tax to the vendor on plumbing materials used in these services, or self-assess tax as a withdrawal from inventory (stock) on the purchase price of the materials used. No tax will be collected from the customer. The initial installation of mechanical or electrical items or appliances in new construction is not taxable. The initial installation of mechanical or electrical items or appliances in an existing building is taxable. Tax must be collected from the customer for both the taxable labor and the sale of any tangible personal property.

3. Electrical Contractors.

a. The installation, repair or replacement of non-mechanical materials which become a part of a structure, such as wiring, breakers, and light fixtures, is not a taxable service. The contractor must either pay tax to the supplier on the materials used in the work, or self-assess tax as a withdrawal from inventory (stock) on the purchase price of the materials used.

b. The initial installation in new or substantially modified construction, and the repair or replacement of mechanical or electrical components, such as a ceiling fan, is a taxable service. Any parts used in the service are also taxable to the customer.

4. Carpeting and Flooring Installation.

a. The initial installation of carpet or flooring into a newly constructed or substantially modified building is not a taxable service. The contractor should either pay tax to the supplier on the materials used in the installation or selfassess tax as a withdrawal from stock (inventory) on the purchase price of all materials.

b. The initial installation of carpet or flooring in an existing building and the replacement or repair of carpet or flooring is a taxable service. Sales tax is to be collected from the customer on all charges for labor and materials.

5. Carpenters.

a. The installation, repair or replacement of custom or standard sized cabinets, shelves or other built in furnishings which become affixed to real property, are not taxable services. A person who builds cabinets, shelves or other built in furnishings either on-site or off-site and installs these items for the customer is a contractor. Contractors are required to either pay tax to their suppliers on their purchases of materials or self-assess tax on the purchase price of property withdrawn from their stock or inventory for use.

b. If the contractor installs prefabricated cabinets, shelves or other built in furnishings or a partially fabricated cabinet or other item from an inventory of prefabricated items he maintains, the contractor should self-assess tax as a withdrawal from inventory (stock) on the retail price of the cabinets, shelves, or furnishings installed.

c. A cabinet maker who builds and sells either prefabricated or custom made cabinets, shelves or other furnishings and does not install these items is a retail seller and must collect and remit sales tax on the retail value of the item.

6. Garage Door Contractors.

a. The initial installation of a garage door in new construction, whether electronically controlled or not, is not a taxable service. The contractor must either pay tax to the supplier on the materials and equipment used in the installation, or self-assess tax as a withdrawal from inventory (stock) on the purchase price of all materials, including the garage door and its components.

b. The initial installation of the electrical or mechanical components of a garage door in an existing building and subsequent repairs to, or the replacement of, the mechanical or electrical components of the garage door system, e.g. the electronic or mechanical control, are taxable services. Any materials or parts used in the repairs or replacement are also taxable to the consumer.

c. Repair or replacement of non-mechanical or non-electric components of the garage door system is not a taxable service. For example, if the contractor replaces the door only, the replacement labor is not taxable. The contractor must either pay tax to the supplier on all materials used in the work, or selfassess tax as a withdrawal from inventory (stock) on the purchase price of the materials used.

F. REQUIREMENT OF SALES TAX PERMIT. If a business performs both taxable and non-taxable services, or if a business sells tangible personal property at retail, then the business is required to obtain a sales tax permit. If no taxable services are performed and no retail sales are made by the business, then a sales tax permit is not required.

G. DIRECT PAY PERMITS. A direct pay permit is only for the use of the holder to whom it is issued. A contractor cannot use the direct pay permit of another person when purchasing materials or services. A direct pay permit holder is not entitled to accrue and remit tax on behalf of other persons.

006.05.06 Ark. Code R. 005-GR-21

Ark. Code Ann. §§ 26-52-103; 26-52-201; 26-52-301; 26-52-307