I think it depends on the state. In my state, you have to be licensed to be able to call yourself a builder. As a homeowner, you're allowed to build your own house, but you can't call yourself a builder, and the local lumberyards will treat you as a member of the general public.

I'm taking a class to take the builder's licensing exam -- if I GC my house, I can save quite a bit with "to the trade" rates, construction interest rates are a bit lower, and I can set up an LLC to protect my current assets (just in case). If I don't pass the exam, at least I have some idea of how to talk to the contractors!

Hi Logista, thanks for answering to my post. Well, my question was not about getting a Builder/GC licence, that's pretty obvious, no offense:) What I was talking about had nothing to do with licensing. It was about an option for regular folk to register with some sort of authority (not sure if at state, federal or local level)for the one house3/project that they would be OB-ing. It's not even opening a business, it's just obtaining a tax exempt number basically...

No, I understood you weren't talking about licensing. I was saying that homeowners here can't declare themselves as a "builder" for any reason. I'm sorry I didn't make that clear.

However, your post got me to go to my state tax website -- contractors aren't tax-exempt, either: Contractors - A sales tax license is not required for contractors or subcontractors, since they are the final consumers of the materials they affix to real property. Anyone who is directly engaged in the activity of constructing, altering, repairing, or improving real estate for others is liable for the sales tax on the inventory value of the materials affixed to the property.

(A sales tax license means you collect sales tax on tangible goods you sell at retail. Not exactly a "tax exempt" license, but similar result.)

In Michigan, at least, somebody's going to pay the sales tax! ;)

it's my understanding that there's really no such thing as "exempt" unless you are a non profit or religious organization. even if you could pull this off you'd probably end up having to pay the tax later on a schedule C (that's what i used to pay on my home based business.) coming from someone who has had personal and family experience with the IRS these folks are not to be screwed with. do yourself and your family a favor and keep your nose squeaky clean. just as in michigan someone is going to be paying the tax. it's a given.

State sales tax laws vary by state. We are a distributor of construction related material in Michigan. We are not charged sales tax on products we purchase from a manufacturer because we are a reseller, but must charge our customers (contractors) sales tax unless they are exempt (non profit or government entity). In most states, the contractor is considered the end user because the products he uses on the homes he builds will not be taken apart from the home and used again (resold).

Even if your state sales tax laws exempt builders, they routinely do audits of businesses to ensure compliance. A single project from a new business entity would send up all kinds of red flags at the state level and you would probably end up with an auditor at your door.

"In this world nothing is certain but death and taxes." Benjamin Franklin

I worked on a dormitory for a large private university in PA where the school insisted on paying all sub-contractors directly because it was exempt from state sales tax but the general contractor was not. Only a non-profit organization or institution can get a "Tax Exempt Number" and thereby avoid paying state sales tax.

What you are referring to is not a tax exemption. It is a "Resale Certificate" or a "Resale Number". It allows you to buy a product without paying sales tax but, as the name implies, you are required to resell the product, collect the sales tax, and sent it to the state. Failure to do so can have dire consequences.

The way Mightyanvil describes it is the way it works where I am as well. DH could have avoided sales tax (he is a builder), but he would have had to pass through the sales tax to someone else.

In TX it works just how mightyanvil described it too.

"to resell the product, collect the sales tax, and sent it to the state"

So I set up a company and get a resale certificate. I buy product for let's say $100 and don't pay sales tax immediately but only when I re-sell.

Then I sell this product for $10 to my spouse and my spouse pays sales tax on $10 which I forward to the state or what?

And then even deduct the "loss" of $90 (because I wasn't able to sell for $100?) from my income taxes? Is that fraud or legally fine? (can't imagine that this is kosher because it is so easy to exploit).

A sale below market value to a relative is considered a gift which is legal but one or the other of you will either have to collect the tax from a susequent buyer or pay it yourself within a certain time limit (one to two years usually). It's a complete waste of time (not to mention dangerous) to be thinking about playing amateur games with professional tax collectors.

is it me or are there really people who would consider trying to pull one over on the IRS? please tell me you're all joking...

Hey, it's the internet. People can say whatever comes to their mind and often do.

kk: chill out. First, this isn't about federal taxes and second, like mightyanvil said, this is the internet.

However, do you really think that there aren't people who would consider trying to pull one over on the IRS? YOU (!) must be joking. BTW, the discussion is not about something blatantly illegal (like doctoring statements) but about finding a loophole.

Don't tell me you never talked to an acquaintance who boasted about how his/her accountant found creative ways to save a few hundred or thousand $$ in tax.

If you do not pay sales tax at the time of purchase on materials for building a home( as a builder)then you must charge sales tax on the finished price of the home.

I work for a builder and do the books for my husband, a painter. We pay sales tax on all supplies at the time of purcahse or we have to charge a rate based on the finished job at the time the job is finished. There is no "secret way" to get around the sales tax issue.

I'm intrigued. "Follow the money" is often the ulitmate answer in business and politics.

So, let's look at this from the other side.

Say I'm buying a house that I have a company/contractor build for me. They have a GC and some of their own subs as well as others they hire. Each business has their "Resale number" so no one pays taxes up front.

Now when the house is done, I come along and pay for it with a mortgage, but (at least in Minnesota) I do not pay any sales tax on the house purchase. So what happens to the sales tax that is supposed to be collected? Is the house purchase price artificially inflated by the builder to accomodate what the contractor should send in to the state? When one sub does work for (sells their services to) another one how does this tax get paid?

Property is taxed by towns in the form of property tax rather than sales tax. Sales tax for materials that were incorporated into a new or renovated house should be included in the GC's final bill to the owner whether it is actually paid by a mortgage or the owner's private funds.

Governments try to avoid taxing something twice but they try even harder to be sure the appropriate tax is collected.

Aggressive tax avoidance is a task best left to accountants.

ok jr. i'm "chilled". regarding taxes federal or otherwise the folks over in DC are very serious about what is due to them. just a little fyi. ;)