Use Tax on a cable project

[ddobb]

I was wondering how everyone addresses the Use Tax issue that we run into on national cable projects or local cable projects?

It seems to be quite a gray area determining real property from personal property on a cable install BOM and bidsheet and how to cover the costs of the use tax. The use taxes on real property are not billable to the customer. If you try and blend them back into the material cost it will simply compound the cost.

On a very large cable project these costs can be considerable and have a sizable impact on final margin.

Real property is typically anything that a customer would not take with them if they moved. It is permantly installed and would cause damage, leave holes etc, if it were removed.

What we have used as the real property where we incur use tax:
Jacks
Connecting blocks (66 / 110 / etc)
Faceplates
All cable
J-hooks - all pathway supports
Surface raceway
cross connect wire
tie wraps
cable tray / ladder racks
All grounding components

Personal Property:
Routers / Switches / Hubs
Patch Panels
Surge Protectors
Phone Systems
Computers
Servers
Cards
Patch Cords
Wire Management
Relay Racks / Cabinets
Wallmount racks
Swing racks
Line Splitters

I am very interested to hear your replies

Thank you

 

[buitenhek]

Big issue.

Many states have different looks. Some allow contractors to charge location sales tax on material only and some on both material & labor.

Some contractors without reseller status charge the tax as a cost because they spend their own money upfront and want a return on money spend (legal ??).

...........I am uncertain if your question applies to a contractor presenting a BOM to a customer or "as the customer" doing tax right offs.

If contractor: and you are supplying all products listed above (real & personal) then tax is based on all equipment based on installation location tax rate. Obviously different rates for different areas of the country for national projects.

If customer: assume abandoned material as tax loss based on time in service percentages versus useful life. Tax attorney know the best angles, not me.

In addition, subcontractor material and labor costs also may have applicable location tax rates. We usually mark up subcontractor costs 15%.

Bottom line: yes, the tax costs will increase overall bid prices. My modus operandi always provides the customer with their material cost (not my costs), material tax, labor cost, labor tax if applicable, sub cost and tax if applicable. I then ask the customer to make sure other contractors do the same because if they do not, the bottom line prices will likely increase during the install when they realize certain costs have not been included. Secondarily, by using actual raw labor rate and hours of each person on the job (plus burden and sell rate) rather than one general labor sales price, and keeping the gross margin percentage (GMP) around 24% I win lots of business. I then challenge the estimators and project managers with cost savings programs to increase the GMP toward 30% (industry gold standard). If they reach their target, I give them a bonus, which by the way, I have included in the bid costs but did not mark up.



Regards
Peter Buitenhek
ProfitDeveloper.com