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Bidding Jobs Across State Lines

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For a number of reasons a contractor can be drawn into different regions than their home state for lucrative contract work. Mobilizing across state lines may increase job prospects but also comes with some financial challenges, many of which are not easy to anticipate. When pursuing such jobs, consider the following:

  • Gain an understanding of the local sales and use tax laws. Most states do not consider construction services to be subject to sales tax. In some states, however, the contractor is considered the consumer of contract materials and equipment and therefore pays local sales or use tax on those costs as they are incurred. This is in contrast to the state of Washington in which most jobs (with some exceptions) are considered retail sales subject to taxation but the contractor can purchase materials and subcontract costs incorporated into the real property exempt from sales tax as they will be “resold” and taxed upon billing to the job owner.
  • Sales tax rates can vary considerably across cities and counties. Knowing the taxing authority’s specific rate is essential when bidding out a job if material costs will be subject to sales tax.
  • Sales and use tax may be assessed on mobile equipment. For contractors, mobile equipment most commonly refers to trucks, trailers, and relocated construction equipment. A simple example of this would be purchasing equipment in Oregon (where there is no sales tax) for a job in Oregon and then transferring the equipment back to Washington (domicile state) once the job is complete. Since sales tax was not paid on the equipment, Washington State use tax needs to be reported and remitted to the State of Washington upon relocation.
  • Licensing and insurance requirements vary among states. Many states require contractors to be licensed with their respective state agency and also meet insurance and or bonding requirements. These costs result in additional overhead if you are not already registered with the state.
  • Consider if your potential customer qualifies for any exemptions. An example would be performing construction work for a tax-exempt organization, such as a non-profit or government agency. An organization’s non-profit status may allow the contractor to purchase materials without paying sales tax. In cases such as these, the organization would issue a certificate that enables you to avoid sales tax when purchasing the materials. Make sure to research these exemptions for each state as they differ in how broad certain exemptions are and whether they allow them to be passed along to the contractor. As an example, Washington does not allow this. In conjunction with these exemptions, be sure to research the documentation needed and ensure you are obtaining that documentation before the job is finished.
  • Are your employees going to be transferred from your domicile or are you planning on hiring locally? Employers must consider any related employment tax implications such as withholding and remitting state taxes, tracking the location of mobile employees, and the requirements to file with the Secretary of State within different states. Additionally, if you have employees working in other states, this generally triggers income tax nexus in states which have income tax.
  • Income and/or franchise tax filing requirements may change when you begin working in other states.

If you are about to perform work in a new state or already operate in multiple states and want to ensure conformity and compliance with local rules and regulations please reach out to our State and Local Tax (SALT) department at 425.454.7990 or email: claine@bpcpa.com.