How did a general contractor handle tax on subcontracted services for an out-of-state customer, especially when the services also benefited the contractor?

Note -- obsolete historical guidance. DRS marks this ruling "not current" and states that it was obsoleted by Announcement (AN) 94(4).

Plain-English summary

Under the historical rule, a subcontractor performing taxable services for a general contractor did not collect tax until the ultimate consumer was charged. The general contractor issued the subcontractor a resale certificate, then separately stated the subcontracted charge and sales tax on the consumer's invoice.

When the ultimate consumer was outside Connecticut and received the benefit outside Connecticut, the service charge was not subject to Connecticut sales tax.

The ruling applied those principles to Connecticut subcontractors A Company and B Company working for Connecticut general contractor X. X could issue resale certificates, and charges for services solely benefiting the foreign consumer were not taxable.

But any portion benefiting X itself remained taxable. X had to either pay tax to its subcontractors or self-assess use tax on the amount paid for those services.

What this means for you

The historical ruling separated resale to the ultimate customer from the contractor's own consumption. Out-of-state customer benefit could remove the ultimate charge from tax, but it did not exempt services the Connecticut contractor used itself.

Common questions

Could the general contractor issue a resale certificate? Yes under the ruling.

Was an out-of-state customer enough by itself? The customer also had to receive the service benefit outside Connecticut.

What if the service benefited the contractor? The contractor owed tax to the subcontractor or had to self-assess use tax.

Citations and references

• Announcement (AN) 94(4) -- identified by DRS as obsoleting this ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 90-5

Original ruling text

Ruling 90-5, Contractors

This information is not current and is being provided for reference purposes only

Ruling 90-5

Contractors

This Ruling has been obsoleted by  AN 94(4)

Performance of taxable services by a subcontractor for a general contractor does not require the collection of the sales tax until the ultimate consumer is charged for such services. The general contractor must issue a resale certificate to the subcontractor in lieu of paying the sales tax at that time and the general contractor must separately state the charge by the subcontractor and the appropriate amount of sales tax therefor on the invoice to the ultimate consumer.

In the event that the ultimate consumer is located outside the state of Connecticut, and the benefit of such services are to be reaped outside of this state, the charge for such services are not subject to the sales tax.

The application of these general principles to the facts presented in your ruling request results in the following ruling:

Where Connecticut retailers of services, i.e. A Company and B Company, provide taxable services on a subcontract basis to a Connecticut general contractor, i.e. X, X may issue a resale certificate for such services. Where such general contractor is providing such services for an ultimate consumer located outside this state and the benefit of such services are to be reaped outside this state, the charges for such services are not subject to the sales tax.

Although X will not be required to collect a sales tax on charges for otherwise taxable services performed solely for the benefit of the foreign based consumer, where such services benefit X, X must either pay the sales tax to the subcontractors or it must self-assess a use tax on the amount paid for such services.

LEGAL DIVISION

January 24, 1990