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Sales and use tax in TN

  • 1.  Sales and use tax in TN

    Posted 09-19-2017 09:23
    Hi
    Does any one have any experience with sale and use tax on fabricated products in the state of Tennessee?

    Scenario:

    GC Hires Sub to perform work. The scope of work requires sub to purchase materials and fabricate or have fabricated a steel structure. Then, the sub will install the structure for the GC.

    Question:
    1. Does the Sub charge sales tax to the GC for the entire cost?
    2. Does the sub charge sales tax for material only?
    3. Does the Sub charge sales tax for material and fabrication?
    4. Does the Sub charge sales tax for material, fabrication and installation?

    Thanks in advance for any help on this?

    ------------------------------
    Terry Kelley MBA - Accounting
    Controller
    Rock City Construction Co., Inc
    Franklin TN
    (615) 794-6691
    ------------------------------


  • 2.  RE: Sales and use tax in TN

    Posted 09-20-2017 11:16

    Hi Terry,

     

    I'll attempt to answer your question. I have researched this issue for another client who was importing fabricated steel items into TN for part of the Music City Center. I am also attaching a couple of pdf files which cite a couple of relevant state regulations. 

     

    So to answer your specific questions, it depends. If fabrication and installation are part of an overall subcontract that includes materials, labor, etc. then the subcontractor should not be charging sales tax to the general. The finished product from construction contracts is exempt from TN sales or use tax. (The acid test being that something is permanently attached to real property.) The sub should either be paying sales tax on his materials as he purchases them or paying USE tax (a tax paid by the ultimate user of taxable property, when sales tax is not collected at the source) on any materials he brought into TN from out of state to be used on a project here AND did not pay TN sales tax when he purchased the materials.

     

    If this is pure fabrication and then a sale to a contractor (sub, general or otherwise) then the seller (the fabricator) should be collecting sales tax on the materials plus labor to fabricate, but not install. Installation of personal property to be attached real property is only subject to sales tax if the installation is something that is ordinarily removable.

     

    Always remember TN's single article sales tax as well. I would presume that more than one item is being fabricated. If so, each item needs to be valued separately for the TN single article sales tax calculation. The single article sales tax works like this: First, the entire purchase amount is subject to the general state sales tax rate of 7%. Next, the first $1,600 of any single item is also subject to the applicable city's or county's local option rate (2.25% in Davidson and Williamson counties) and the second $1,600 of any one single item is subject to a nm additional state rate of 2.75%. Anything above that threshold ($3,200) for any single items is only subject to the general state rate of 7%.

     

    As you can see, it can get complicated. Please feel free to reach out to me by phone if you need further clarification.

     

    Best,

     

    Tim

     

     

     

    email RM_logo_vA_rgbTim Van Cleve, CPA I Managing Member, Nashville Market

    Rodefer Moss & Co, PLLC 

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