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Volume 6, Issue 2, February 2008

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Taking Your Hammer, Saw, and Ladder from
State to State

By Josie Henneke, CPA, CMI
Greenfield, Indiana

Generally speaking, every state specifically identifies contractors as “making improvements to realty.” Special rules apply to construction contractors who make improvements to realty but don’t always work for contractors performing other types of contracts. As you bid on new jobs in states outside your home state, make sure you understand the application of sales and use tax in that state – don’t assume your home state rules work. Making a 6% error (or greater) due to a misinterpretation of sales tax rules can be the difference in a project being profitable or not.

For the purposes of this article, “contractor” will always refer to a contractor making improvement to realty, like a roof, walls, doors, driveways, etc. Of course, when it comes to carpeting, drapes, landscaping, and other “soft” real estate items, classification as improvement to realty varies among the states. Also, some states distinguish between original construction and remodeling. Several states require that a contractor post a sales tax bond.

First, a couple of general rules that work in most states for contractors. The only materials considered job materials are those that become a part of the construction, i.e. nails, roofing, lumber, paint, concrete blocks, etc. Tools, hard hats, tape measures, architectural drawings, and the like, are “used” by the contractor and are taxable to the contractor regardless of whether or not the customer is tax-exempt. In most states, contractors are deemed the end users of the job materials purchased for incorporation into real property and must pay the sales tax or use tax on all materials. If contractors do not pay sales tax to their suppliers on purchases, they must self-assess use tax and pay it directly to the state. The contractor collects no sales tax from the customer.

In Indiana, unlike most states, a contractor has a choice of whether to contract as just described (paying sales tax on all job materials and not collecting sales tax from the customer) or to contract under a “time and materials” contract. Under a time and materials contract, labor is stated separately from the sale of materials. The labor is exempt from sales tax. Only the portion representing the sale of materials is subject to collection of sales tax.

If a state allows a pass-through of the customer’s exempt status to the contractor, the pass-through exemption applies only to the job materials that become a part of the realty. Not every state allows a pass-through. Kentucky considers that everything purchased or used on a job is taxable to the contractor, even on jobs for charitable or governmental organizations. Some states, like Michigan, have a very limited list of non-profits recognized by the state for pass-through of the sales tax exemption. States have differing methodologies for documenting the exempt status of contracts, if allowed.

Understanding and complying with the myriad of state sales/use tax requirements at the onset of the bidding and acceptance of contracts can save much heartache and expense a few months, or even years, later when the state auditor shows up for a sales tax audit. A simple sales and use tax “health check” today will enable your company to address material non-compliance concerns, so that a future sales/use tax audit will be as easy as “falling off a ladder.”

If you have questions, please contact Kemper CPA Group LLP. Josie Henneke can be reached at our Greenfield, Indiana office at (317) 462-3401.

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Section 179 Business Expensing – A Tax Benefit
for Small Businesses

Small businesses, including corporations, partnerships, and sole proprietorships, stand to benefit from Section 179 small business expensing, yet it is an often-overlooked tax benefit. Section 179 of the Internal Revenue Code allows small businesses to expense business property in the tax year that the property is purchased, rather than claiming a portion of the deduction over the course of several tax years through depreciation.

Eligible property includes:

Machinery and equipment

Furniture and fixtures that are contained in or attached to a building but are not structural components

Gasoline storage tanks and pumps at service stations

Livestock, including horses, cattle, hogs, sheep, goats, and furbearing animals

Single-purpose agricultural or horticultural structures

Storage facilities used for distributing petroleum or primary petroleum products, excluding buildings and structural components

Off-the-shelf computer software

As part of the recently-passed Economic Stimulus Act of 2008, both the dollar limitation and investment limitation were increased. These amounts apply to property purchased and placed into service in tax years beginning in 2008. Under previous law, these dollar amounts were indexed for inflation; under the stimulus package, they are not.

Dollar limitation: Beginning in tax year 2008, the base dollar limitation was increased to $250,000; prior to the new law, the base limit was $125,000.

Investment limitation: The maximum allowable deduction is phased out by the amount by which all qualifying property placed in service during the tax year exceeds the investment limitation. The law raised the investment limitation to $800,000, up from $500,000 in 2007.

The deduction is not allowed if the taxpayer didn’t have taxable income in the year that the property is placed into service. Additionally, estates, trusts, and certain noncorporate lessors cannot claim the deduction.

Don’t miss out on the benefit of Section 179 small business expensing. If you believe your business could benefit, contact Kemper CPA Group LLP today. Our certified public accountants and consultants are available to provide guidance on this tax matter and answer any other tax-related questions you might have.

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Loose Change

The January/February 2008 issue of the “Loose Change” Newsletter includes the following articles:

Contact Kemper Capital Management LLC for all of your investing needs.

Investment advisory services offered by KCPAG Financial Advisors LLC, a registered investment advisor. Securities officered through Securities America, Inc., a registered broker/dealer. Member NASD/SIPC. Thomas A. Moore, John D.
Porter, Shawna D. Horne, Sheila Lautenbacher, Jessica Daugherty, Joseph M. Mendes, CA Insurance Lic. #0C62535, Gregory Meador, Marcia Elder, Registered Representatives. Insurance services offered through KCPAG Insurance Services LLC. Kemper Capital Management LLC and its subsidiaries are not affiliated with Securities America.

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KTC and QuickBooks – Partners for Your Business
Success

Kemper Technology Consulting’s Evansville and Indianapolis, Indiana locations have obtained Intuit Solution Provider status, which means that they are more equipped than ever to meet your business’ Intuit QuickBooks needs.

The Intuit Solution Provider Program provides our certified technology professionals with advanced knowledge about QuickBooks Enterprise Solutions software, and Kemper Technology Consulting was one of a select few firms who were invited to help develop the program during its inception.

QuickBooks Enterprise Solutions is geared toward mid-sized businesses and has a number of tools to help you better manage your business’ critical operations – finances, inventory, sales, purchasing, and employees. Enterprise Solutions is flexible and scalable, allowing you to utilize the software in a way that best supports your growing organization. In addition, QuickBooks Enterprise Solutions allows you to:

Get real-time access to your business information instantly when you need it with more than 120 built-in reports.

Manage key financial information and accounting tasks with Enterprise Solutions' advanced functionality, including, but not limited to, G/L, A/P, A/R, payroll, fixed assets, job costing, and budgeting.

Secure your information from accidental or intentional misuse, so only the people who need to access the data can do so.

Create and send estimates, invoices, or sales orders, check outstanding orders with your available inventory, and pay your vendors.

Integrate Enterprise Solutions with your other QuickBooks-compatible business applications.

QuickBooks ProAdvisors can help you determine which QuickBooks software is right for your business and assist you in setting up the appropriate features for your use. Kemper CPA Group LLP and Kemper Technology Consulting have Certified QuickBooks Pro Advisors who are ready to provide you with the QuickBooks solutions you need.

QuickBooks ProAdvisors:

Deborah Gross – Vincennes, Indiana
Eric Kremer, CPA – Evansville, Indiana
Sharon Kurtz – Olney, Illinois
Larry Leeds, CPA – Indianapolis, Indiana
Kathy Leonard – Effingham, Illinois
Amanda Meyer – Robinson, Illinois
Kurt Nass – Modesto, California
Martin Roth, CPA, CITP – Evansville, Indiana
Lisa Weiler – Robinson, Illinois
Andrew Young – Indianapolis, Indiana

In addition, several in our firm have obtained supplemental QuickBooks certifications:

Our Advanced Certified QuickBooks ProAdvisors have higher proficiency with QuickBooks software. They have completed training beyond that required for QuickBooks certification and are available to help you with all of your QuickBooks software needs.

Advanced Certified QuickBooks ProAdvisors:

Deborah Gross – Vincennes, Indiana
Martin Roth, CPA, CITP – Evansville, Indiana

Our Certified QuickBooks Enterprise ProAdvisors can answer your Enterprise Solutions questions and help you with software set up and training to support your growing business.

QuickBooks Enterprise ProAdvisors:

Deborah Gross – Vincennes, Indiana
Larry Leeds, CPA – Indianapolis, Indiana
Martin Roth, CPA, CITP – Evansville, Indiana
Andrew Young – Indianapolis, Indiana

Our Certified QuickBooks Point of Sale ProAdvisors can help you with QuickBooks Point of Sale installation, setup, and training to ensure a smooth transition to Point of Sale, even when you have multiple locations.

QuickBooks Point of Sale ProAdvisors:

Amy Heacock – Evansville, Indiana
Kurt Nass – Modesto, California
Andrew Young – Indianapolis, Indiana

What can QuickBooks and Kemper Technology Consulting do for your business? Contact Kemper Technology Consulting today to learn more.

Kemper Technology Consulting
Robinson, IL
618-546-5633
www.kempertc.com

Evansville, IN  •  Indianapolis, IN  •  Paducah, KY  •  Effingham, IL

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Please be advised that, based upon current Internal Revenue Service (IRS) rules and standards, the advice herein is not intended to be used, nor can it be used, as the sole basis for decisions. Additional issues may exist that could affect the treatment of the individual transactions, and this narrative does not provide a conclusion with respect to all such issues.

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