The California Board of Equalization (“BOE”) is responsible for collection of sales and use taxes. When you buy a product in California and are charged sales tax, the seller is required to file a return, and pay the tax, to the BOE. Sales taxes are imposed by the state, as well as local government, on personal property purchased in California. Use taxes are imposed on personal property bought out-of state, and then brought into California for use.
In most instances, the BOE considers a construction contractor to be a consumer of “materials” which they furnish and install in their construction projects. Such items as lumber, nails, and concrete become part of the construction project itself. They lose their identity and become an integral part of the completed structure. The contractor, as consumer, pays sales tax on these items.
However, the contractor is considered a retailer of “fixtures” which they supply to the job and install. Fixtures is defined by the BOE as items which are accessory to a building or other structure and do not lose their identity as accessories when installed. Such items as lighting and plumbing fixtures, and custom fabricated seating. As retailer, the contractor must charge his customer a tax measured by the retail selling price which, in the case of a lump sum contract, is the cost price of the fixture to the contractor. A fixture has a specific meaning in real property law; however, the meaning of the term for sales tax purposes is separate and governed by state regulation.
As a retailer, the contractor needs a Sellers Permit, and must collect and pay sales tax. The BOE has the ability to conduct audits of contractors, and can assess penalties for under-reporting, failure to report, and failing to obtain a sellers permit. Any contractor without a sales permit should contact an experienced business attorney to make sure they are in compliance.