Depending on the type of business, some retailers and manufacturers occasionally act as contractors. The most common examples of businesses that are retailers or manufacturers but sometimes act as contractors are: fuel dealers when installing heating equipment; appliance stores; countertop manufacturers; heating and plumbing businesses who also have a retail store; etc.
Act 134 of 2016 clarified that if you are a manufacturer or a retailer, you will be treated as a contractor when purchasing material and supplies for use in improving, altering, or repairing real property. 32 V.S.A. § 9701(5). The phrase “treated as a contractor” means that you must pay sales tax to a wholesaler when purchasing these materials, or you must remit use tax when you install materials or supplies from your inventory.
However, Act 134 established a way for retailers and manufacturers who occasionally act as contractors to make an election to be treated as a retailer. 32 V.S.A. § 9711.
What Does This Election Mean?
As mentioned above, if you do not make this election, you will be treated as a contractor for purposes of the sales and use tax. That means that when you purchase materials and supplies to be installed in real property, you should pay the sales tax or remit the use tax. This is how the law has always applied to contractors.
There are some retailers and manufacturers who would like to be treated as a retailer. This means that they would charge the sales tax to their end customer when they make the installation into real property.
What Does the Word "Primarily" Mean?
“Primarily” means more than 50 percent of the business’s gross receipts in the prior calendar year were from manufacturing or retail sales, respectively.
Who Is Eligible to Make the Election?
Only businesses who are primarily engaged in the business of manufacturing tangible personal property or making retail sales of tangible personal property can choose to make this election. In other words, if you are primarily a contractor and make no or relatively few retail sales, you cannot make this election. You should continue to pay the sales tax when you purchase the supplies and materials you will use to improve real property.
How Do I Make This Election?
An election must be filed with the Department of Taxes at least 30 days before you change your tax collection practices.
If you are primarily a retailer or manufacturer who occasionally acts as a contractor, and would like to be treated as a retailer, you must fill out the form and mail it to the Tax Department at:
Vermont Department of Taxes
PO Box 547
Montpelier, VT 05633-0547
Upon receipt the Department will note your election. Please remember, if you choose to make this election, it is binding for five years. After five years you can contact the Department to change your status, or continue with the election. If we don’t hear from you, your election to be treated as a “retailer" will remain in place.
I’ve Made the Election – What Do I Do Now?
You may start changing your practices 30 days after filing the election form with the Department. When you bill your customers for property you have installed, you would charge them the sales tax. The sales tax will be charged on the sales price of the materials and supplies, which shall not be less than the manufacturer’s or retailer’s best customer price. You must also separately state the sales tax on any invoice or receipt.