Real property contractors (RPC) who work in DC, MD and VA work in what I call the “Bermuda Triangle” of sales tax because the laws are different in each state and is really different in DC. For those businesses that reside in MD or VA know that they are considered the consumer of all the job materials and should pay sales tax directly to their suppliers or directly to the state where title first passes. In DC, there are two significant differences where the RPC should collect sales tax from their customers on the services they are providing and remit this tax to DC. The two taxable services are as follows:
- Section 9-438 – Construction, Repair, or Alteration of Real Property – Effective July 1, 1989, DC made repair services to a building that are billed on a T&M basis, a taxable transaction where tax is to be collected from the customer. Section 9-438.3 states “Under contracts in which the contractor agrees to sell materials used at an agreed price for those materials, or at a regular retail price, and to perform the work either for an additional price or on the basis of time consumed, the contractor is deemed to be a vendor making a taxable sale at retail within the meaning of the Act and required to file returns, pay the tax, and collect reimbursement for the tax from the purchaser in the same manner as any other vendor”.
- Section 9-472 – Real Property Maintenance – Section 9-472.1 defines the phrase “Real Property
Maintenance” as “activities of keeping the land or premises of a building clean, orderly and functional, including performing minor adjustments, maintenance or repairs”. Section 9-472.2 lists the following examples of taxable services:
- Wall and ceiling cleaning;
- Pest control;
- Exterior and interior window cleaning;
- Floor (hardwood and tile) cleaning;
- Restroom cleaning and stocking;
- Exterior and interior trash removal;
- Maintenance of inground or indoor swimming pools;
- Exterior building cleaning;
- Chimney and duct cleaning;
- Parking, lot, garage, and recreational area maintenance; and
- Ground maintenance, including:
- Edging; and
I have been involved in a few DC sales tax audits for RPC’s and for whatever reason, the following service is not listed in Section 472. The following service for the following two industries are deemed to be a taxable service in DC and assessed in these audits:
- Preventative maintenance agreements
- Elevators; and
- HVAC equipment
Since the MD and VA RPC’s know they are the consumer of the jobs materials and should pay tax to their suppliers in their respective states, it is a shock when they are informed in an audit by DC that they should have been collecting sales tax. What makes things worse is that if the RPC is not licensed in DC to collect tax, then the audit period will be extended from the three (3) year statute period to a longer period. The extended period usually corresponds to how long they have been doing business in DC.
If you should have any questions about the above DC taxable transactions or are being audited by DC, MD or VA, then please contact Ken Dickard directly on his cell – 410-598-0955.