Sales & Use Tax
From MBSAwiki
- This article examines the three general types of sales tax treatment of modular homes and is available for use solely as a resource. For specific information on individual states please see the alphabetical listing of Sales & Use Tax Guides.
While every effort has been made to ensure the accuracy of this article, use of the information contained on this page constitutes agreement and understanding that the Modular Building Systems Association (MBSA)] is in no way responsible for any incorrect or inaccurate information contained herein and that the MBSA is not responsible for any situations that arise from reliance on the within information. This includes errors, omissions or changes to any law or regulation that are not reflected in this document.
Detailed advice on the sales tax law in all states is available to members of the MBSA as part of your membership. All other persons or corporate entities should consult a tax professional or click here to join the MBSA.
Background
History of Sales Tax Laws
States’ sales and use tax laws were written before the modular housing industry was in existence.
As originally written, the states’ sales and use tax laws make a distinction between:
- The retail sale of tangible personal property – sales tax due; and
- A capital improvement to real property - use tax due
Mobile homes to modular
When the predecessor to the modular industry, the “mobile home” industry, came into existence, the sale of a mobile home was considered a sale of tangible personal property the same as the sale of an automobile. In fact, the mobile home was titled by the state department of transportation.
How to tax modular?
With the advent of the modular industry, a dilemma was formed…how should this product be taxed? Is the sale of a modular home a retail sale of tangible personal property or is it a capital improvement to real property
Retail Sale?
In the beginning, if we asked the state department of tax and revenue they would tell you, “it’s a retail sale, send in all your money.”
Today's Tax Laws
For modular sales and use tax purposes today, there are three types of states:
- States where sales and use tax is determined based on who installs the home,
- States where there has been some sort of legislative fix, and
- Michigan
In states where sales and use tax is determined based on who installs the home, the way the transaction is structured, will determine how much tax is due on the modular home.
…and remember, when you are audited, the contracts in your files will be the evidence used to determine how you structured your transaction.
In states where there has been some sort of legislative fix, there may still be an opportunity to reduce the total amount of tax you paid by properly structuring the transaction…and again, remember, the paperwork in your files will be the final determinate.
States where sales and use tax is determined based on who installs the home
Manufacturer Delivers Home & Builder Installs
If the manufacturer delivers the home to the builder, and the builder is responsible to install the home on the foundation, the manufacturer will be viewed as making a retail sale of tangible personal property and will be responsible to remit sales tax on 100% of the selling price to the builder, (including shipping costs). see below
Manufacturer Delivers Home & Manufacturer Installs
If the manufacturer delivers the home to the builder, and the manufacturer installs the home on the foundation, the manufacturer will be viewed as making a capital improvement to real property and the manufacturer will be eligible to remit use tax on the manufacturers actual cost of materials used in the manufacture of the home in the factory
What if a subcontractor (set crew) is hired to set the home on the foundation?
- (1) If the builder contracts with the set crew –
- (a) Retail sale of tangible personal property
- (b) Sales tax on 100% of manufacturer’s selling price to the builder
- (2) If the manufacturer contracts with the set crew –
- (a) Capital improvement to real property
- (b) Use tax on the manufacturer’s actual cost of materials
…again, the contracts in your files will be evidence to determine how the transaction was structured
Two contracts for each transaction:
States where manufacturer is eligible to remit tax on 60% of manufacturers invoice price to the builder
- The 60% is a “conservative,” agreed to, approximation of what would be the manufacturers actual cost of materials. (Note: Connecticut accepts 70%)
- Shipping and other costs are not included in the invoice price to the builder when computing the 60%
- Manufacturer may still elect to pay tax on actual cost of materials, but will have to document/verify the numbers.
What if the builder wants to install the home?
Answer: Set up separate corporation.
