Contracting Services

8a.1. Persons engaged in the business of providing contracting services to other persons are providing a service that is generally not subject to the consumers sales and service tax. Such persons are generally considered to be the user or consumer of all tangible personal property and all services which they purchase. Consequently consumers sales and use taxes must be paid on all purchases of tangible personal property or taxable services except as otherwise provided in these regulations.

8a.2. The terms "contracting services" and "contracting" are synonymous. Thus, the term "contracting services" means the furnishing of work or both materials and work, for another in fulfillment of a contract for the construction, alteration, repair, decoration or improvement of a new or existing building or structure or any part thereof or for the removal or demolition of a building or structure or any part thereof or for the alteration, improvement or development of real property. Beginning July 1, 1989, the form of the contract no longer controls whether a person is providing a tax exempt contracting service or is providing a taxable service. The question in every case will be what is being done, not how is it being billed.

8a.3. Additionally, the definition of "contracting" is narrowed beginning July 1, 1989. For contracts entered into on or after July 1st, the work must result in a capital improvement to a building or other structure or to real property for the work to be contracting. If this condition is not met, the work provided is a taxable service, not contracting. When a taxable service is provided, consumers sales and service tax must be charged to and collected from the customer, but the vendor may purchase materials that will be used or consumed in making the taxable service free from consumers sales and use taxes by presenting a resale exemption certificate to the vendor.

8a.4. Not all activity of a contractor is treated as contracting for consumers sales and use tax purposes. For example:

8a.4.1. Contract miners and other persons engaged by the producer of natural resources (as defined for severance tax purposes) to perform any reclamation, waste disposal or environmental activities associated with the production of natural resources are treated as engaging in the activity of producing natural resources with respect to such activities for consumers sales and service tax and use tax purposes. Purchases directly used or consumed in the production of natural resources are exempt from tax as provided in Section 9.4.1 of these regulations. However, persons engaged in construction, alteration, repair or improvement of facilities to be used by others to produce natural resources are engaged in the activity of contracting and are not considered to be producing natural resources. See Section 107 of these regulations for additional information concerning the taxation of contractors.

8a.4.2. Merchants who sell certain types of tangible personal property and perform incidental installation services with respect thereto are by statute not engaged in contracting. They are selling tangible personal property and rendering taxable services.

8a.4.3. When a contractor sells tangible personal property without installing the property or arranging for its installation, the transaction is a sale of tangible personal property and not contracting.

8a.4.4. When the work which a contractor does pursuant to a contract with another does not result in a capital improvement to a building or other structure or to real property, the work is not contracting. It is the rendering of a taxable service.
8a.5. A capital improvement is an alteration, repair, decoration or improvement of a building or structure or the alteration, improvement or development of real property:

8a.5.1. Which adds utility to the building, structure or real property or any part thereof by substantially adding to the value of the building or structure or real property, or appreciably prolonging or extending the original useful life of the building or structure or real property; and

8a.5.2. Which becomes part of the building or structure or real property or is permanently affixed to or attached to the building or structure or real property so that its removal would cause material damage to the item being removed or to the building or structure or real property to which it is attached or affixed; and

8a.5.3. Which is intended to become a permanent installation or to be relatively permanent.

8a.6. A "retailer dealer" merchant who agrees to sell from the inventory of his general or special store certain types of tangible personal property and to install the same, or to arrange for its installation, is not a contractor with respect to such sale and installation when the installation is merely incidental to the sale of the tangible personal property. See Section 114 of these regulations for detailed information on sales of certain tangible personal property with incidental installation by "retail dealers."

8a.6.1. A "general or special store" as used in these regulations means any store or mercantile establishment having regular business hours during which goods, wares, or merchandise of any kind is offered for sale to consumers or users.

8a.6.2. Installation of the following tangible personal property is always incidental to the sale thereof by a general or special store, regardless of whether the installation is done by the merchant, or his employees, or the merchant arranges for a third party to do the installation:

Wall-to-wall carpeting
Mobile homes
Window air conditioning units
Dishwashers (residential)
Clothing washing machines or dryers (residential)
Drapery rods
Window shades
Venetian blinds
Canvas awnings
Free standing commercial equipment
Free standing industrial equipment

8a.7. For additional information about the tax liability of contractors see Sections 107 through 122 of these regulations.