This guest post was written by Al Clark with Smith Adcock and Company LLP ([email protected]).
Contractors in Georgia have special sales tax reporting and filing requirements. Non-compliance with those rules can be expensive if audited. A GC may be liable for sales tax the sub was supposed to pay on materials, or a GC may be required to withhold on payments to a non-resident subcontractor.
Non-resident contractors are required to file a form with the Georgia Department of Revenue if they have a construction contract for more than $10,000. General contractors are required to file a form with the DOR if they have a subcontract with a non-resident subcontractor for $10,000 or more.
GCs are required to withhold 2% of the payments to non-resident subs for subcontracts exceeding $250,000 unless the non-resident sub posts a bond with the DOR for the sales tax. The GC cannot release those funds to the sub until authorized to do so by the DOR, which requires a specific form sent to the DOR. The GC notifies the DOR of funds that it has withheld with a form to the DOR filed 60 days after the sales tax reporting period of the sub’s completion of a contract or completion of a phase of the contract. This 60 day rule could make the reporting several months after the completion of a job if the sub’s reporting period is quarterly or annually.
Georgia contractors need to pay particular attention to the requirement of filing the required forms for non-resident subcontracts exceeding $10,000 and subcontracts with resident subcontractors exceeding $250,000. In addition, all Georgia contractors are required to file a sales tax report, which may be monthly, quarterly or annually.
Additionally, Georgia contractors need to be sure that their subcontracts explicitly state that the sub is responsible for payment of the sales tax on the materials that they use on the contract. If the sub bills the general for materials and labor, the invoice needs to specifically list the sales tax as a separate line item on the invoice. If that is not done, the general could be liable for the sales tax on those materials, or even the entire subcontract.
Some Georgia contractors buy materials for their own use and then occasionally may sell those materials. Other contractors may be “duel operators”, such as an asphalt paver who produces asphalt for its own use and sells at retail to other companies doing asphalt paving. They will generally pay the sales tax on the materials they buy, charge the sales tax to their customers who only buy the asphalt from them, and then take a credit for the sale tax that they paid on their next sales tax report, thus effectively only paying sales tax one time on that product.
Review the rules to be sure you are correctly reporting, as the potential costs of noncompliance are easy to avoid by costly if not.