There has been some confusion among construction contractors recently about the California State Board of Equalization’s (“Board” or “SBE”)position on the application of sales tax to materials provided by a construction contractor working under a time and materials (“T&M”) contract.  The confusion stems from an unclear “Summary of Application of Tax for Construction Contractors” table that was attached to a February 8, 2012 letter sent to licensed contractors throughout the State, and comments made to some contractors by SBE agents who claimed that contractors owed sales tax any time they added mark-up to materials on a T&M job.  Even the regulation that governs the application of sales tax to construction contractors—Regulation 1521—is not a model of clarity regarding what is and is not taxable on T&M contracts.
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