The info you want is likely spefic to Utah. I'd get some bids from other window sources in your state. They may have a more understandable explanation.

They are not going to call out the sales tax because it exposes the builders cost on it. Which is none of your business, unless you have a cost plus contract that requies the cost to be a basis for markup compensation on top of the total. That’s the same with any supplier. Any builder cost is private, proprietary, information. It doesnt involve you. The end contract price of the house is all that is non propeietary to the homeowner.

@Verbo I'm not sure what type of contract mine is called. But there is a cost and all the line items are broken out. My builder charges a 5% profit and 10% overhead upcharge on every single line item of my construction estimate. so don't I have a cost plus contract? Sorry, I'm very new to all this.

I basically understand the builder’s description. I am not familiar with Utah tax laws but here in Texas it is pretty straight forward. “Services” are not taxed. “goods” are taxed. The tax is calculated based on state and local numbers. Buyer’s pay this cost unless it is excluded in your contract. I do get suspicious when “explanations” are overly complicated. Sounds like this might be your situation. Builder’s do need to recover their costs including tax. But they should be transparent about it.

I don't know if this applies to your situation, but perhaps it can shed light. I live in the midwest and in my state sales tax is charged on the purchase of goods (not services). If we buy materials for $10,000, mark them up 40% and add $10,000 of labor, our line item invoice would be $14,000 materials + $1400 tax (10%) + $10,000 labor. $25,400 total.

Or I can pay use tax on the materials I use in a job. So I buy for $10000, pay 10% use tax to the state, or $1000. I then charge the customer $14,000 + $1000 + $10,000 = $25,000. A $400 tax reduction. I typically opt for this, because it saves the customer money, but I won't break it out on the invoice, just a total price of $25,000 including tax.

Both methods are allowable by the state.

From your explanation, that is basically a cost plus contract. The question I would have is, what’s the basis for calculating tax? How does he separate out non-taxable from taxable? He sort of said they do manual calculations but based on what? Unless you audit his bills compared to taxes charged, you can’t know for sure. The 10% overhead is usually for admin costs and other items like insurances and office needs. That is low. Around here builder’s have a 20-25% profit model. Some even more. Some trust has to be part of the relationship. Without actually seeing the contract, no one can be sure. If it is of great concern, get a good real estate agent to take a look and explain it to you. Best to do this before signing but apparently you already have signed contract.

I meant, Real Estate attorney not agent.

Contact the Utah's Revenue Department. Here's the link for Sales and Use Tax: https://tax.utah.gov/sales 

These issues can be convoluted. So, get an answer from the source and ask for the section in the applicable tax code.

Purchases of Construction Materials for Resale

A contractor must buy construction materials for resale tax-free and collect sales tax from the end consumer if the items are sold as tangible personal property. But the contractor must pay use tax on the purchase of the item if the contractor buys construction materials tax-free for resale, then uses them for personal use or converts them to real property through an installation.

Some contractors engage in both types of transactions, as in the case of a contractor who sells and installs storm doors, but also sells doors directly to customers for installation by someone else.

Incorrect Practices

A contractor who sells tangible personal property under a furnish-and-install contract may not:

1. collect sales tax on the transaction;

2. offset the sales tax owed on the contractor’s purchase of the tangible personal property by any sales tax the contractor incorrectly collected on the furnish-and-install contract; or

3. show the tax owed on the contractor’s purchase of construction materials (or any amount that appears to be tax) as a separate item on a customer invoice or contract.

I don't know Utah but I do CA.

If there is a subcontract including labor and materials, the subcontractor pays the sales tax within the totals of the subcontract. We as contractor pay sales tax on the materials we buy directly and charge only a total to the client. If similar in Utah, you would not see a line item separated out for sales tax.

This is the same as @bry911 explains below.

I don't know the answer for Utah because I really don't understand the message you got from the supplier, but I can give you a general understanding that may help a little bit.

In the U.S. sales tax is an end user tax rather than a value added tax, so all taxes are deferred to the end user. In many states products are taxed differently than services. In fact, in many states services are not taxed at all and only products are taxed, while in some other states products are taxed at different rates than services. While this is a mess it all works generally the same way.

This can get complicated when a business is a supplier or manufacturer and an installer. In that case, a portion of the window will be taxed at a different rate. So let's use an example for a window supplier and an 8% product only sales tax. Suppose a supplier purchases a window at $100, they will sell the window to a contractor for $150, $200 retail to a customer, or install it themselves for $250.

So if a customer comes in they will pay $200 plus $16 in sales tax. However, that sales tax may be calculated differently if the customer purchases an installed window. In that case the amount of product could be reduced to cost $100 and the service would be the additional $150. So you would get a cost of $250 plus $8 in sales tax. If the company is selling windows to builder there would be no tax on the $150 from the supplier but the builder would be required to collect tax from the end user (how that tax is calculated depends on how the builder does business but likely it will be $150 plus $12 sales tax plus installation charges).

Complicating this further, is the fact that states may collect differently in the construction industry because it is exponentially easier to collect from suppliers than installers and so they may have suppliers pay even though the window will be used for resale.