Is redoing a driveway/sidewalk a capital improvement?

[DisneyMomJen]

We just had our driveway and front walkway completely redone at the same time as our neighbor. I had received 3 estimates. The first contractor said there would not be any tax charged so I just assumed that would be the same for all contractors. After completion (used third estimate) we received the bill and are being charged 7% sales tax which is about $500! I was not expecting this at all and am wondering if this contractor is just trying to take advantage of my neighbor and I. We are in NJ which may make a difference. From researching online it seems like this is definitely considered a capital improvement but I just want to make sure before I contact the contractor.

 

[CyndiLooWho]

Check with your locality, but I would not consider it a capital improvement. I would consider it a repair. Sidewalks for sure are not capital improvements and are the responsibility of the homeowner in most places.

 

[CupcakeKelly]

We just had our driveway and front walkway completely redone at the same time as our neighbor. I had received 3 estimates. The first contractor said there would not be any tax charged so I just assumed that would be the same for all contractors. After completion (used third estimate) we received the bill and are being charged 7% sales tax which is about $500! I was not expecting this at all and am wondering if this contractor is just trying to take advantage of my neighbor and I. We are in NJ which may make a difference. From researching online it seems like this is definitely considered a capital improvement but I just want to make sure before I contact the contractor.

There is a sales and use tax bulletin on what NJ considers a capital improvement, and what should be exempt from the tax

http://www.state.nj.us/treasury/taxation/pdf/pubs/sales/su2.pdf

I would take a look at that, see if it fits your fact pattern. The difference might be whether or not it was a complete paving or if it was a repair job. That makes a difference.

 

[cglaura]

We just had our driveway and front walkway completely redone at the same time as our neighbor. I had received 3 estimates. The first contractor said there would not be any tax charged so I just assumed that would be the same for all contractors. After completion (used third estimate) we received the bill and are being charged 7% sales tax which is about $500! I was not expecting this at all and am wondering if this contractor is just trying to take advantage of my neighbor and I. We are in NJ which may make a difference. From researching online it seems like this is definitely considered a capital improvement but I just want to make sure before I contact the contractor.

I think they can't charge tax for the labor portion, but can on materials. If not itemized then they can tax the entire bill.

When a contractor performs a taxable capital improvement, repair, maintenance, or installation service, sales tax must be charged on the labor portion of the bill. If the labor and material charges are not separately stated on a bill, the contractor must collect sales tax on the total amount of the bill.​

http://www.state.nj.us/treasury/taxation/su_15.shtml

 

[brettb]

I think they can't charge tax for the labor portion, but can on materials. If not itemized then they can tax the entire bill.

They way I read the document posted above, this is sort of backwards. Contractors *cannot* collect sales tax on materials if they are itemized separately from the labor. They already paid sales tax when they bought the materials so it should pass through I guess - but they can't add another 7% specifically to materials. If they don't itemize (and the job is not exempt), they'll collect sales tax on the whole amount. This isn't very transparent and probably leads to double taxation but you won't know that.

When a contractor performs a taxable capital improvement, repair, maintenance, or installation service, sales tax must be charged on the labor portion of the bill. If the labor and material charges are not separately stated on a bill, the contractor must collect sales tax on the total amount of the bill.​

http://www.state.nj.us/treasury/taxation/su_15.shtml

It's important to understand the different between taxable and exempt services. They're outlined in the PDF from above. And they give a decent example of when a "repair" rises to the level of a capital improvment:

In some situations, the difference between a repair and a capital improvement is the extent of the work that is done. For example, replacing a few loose bath tiles or a portion of a leaky roof is a repair to the existing real property. How* ever, replacing all of the tiles or the entire roof with upgraded or improved materials would be an exempt capital improvement.​

Based on my reading and the fact that this was a complete redo rather than a repair, I think if you give the contractor a completed ST-8, he cannot collect sales tax - but you should read the PDF and draw your own conclusion.

 

[travelitis]

I don't think the OP's description, " complete redo" is specific enough to know what level of work was done. To me it sounds extensive enough that it could have risen above a non taxable repair. The OP should nicely ask the contractor why tax was collected and state a competitor had quoted the job without tax. It could be that the company who did the work is correct and that there is a fine line this job crossed. It would be great if they said it was an error, and they didn't need to collect tax, but don't hold your breath when waiting for a tax break.

Keep in mind that tax is not profit for the contractor. It's a bill collected by the contractor to hand over to the government. Yes, they have to play tax on the supplies they buy, the tools they buy, the gas that goes in their vehicles, and their payroll, and all of that is part of their overhead, or cost of doing business, that is factored into your estimate. You have no claim against a business that you have already paid the tax because you paid a contractor who paid tax on materials. You didn't pay for raw materials but for a job that was the combination of skilled labor and materials. If you'd paid the tax by paying for the job, that argument would hold up against restaurants, retailers, car dealers, etc. With all that tax being paid, its still not enough, but that's another topic.

 

[brettb]

I don't think the OP's description, " complete redo" is specific enough to know what level of work was done. To me it sounds extensive enough that it could have risen above a non taxable repair. The OP should nicely ask the contractor why tax was collected and state a competitor had quoted the job without tax. It could be that the company who did the work is correct and that there is a fine line this job crossed. It would be great if they said it was an error, and they didn't need to collect tax, but don't hold your breath when waiting for a tax break.
<snip>

From the PDF, I got the impression that it's up to the homeowner to fill out the ST-8 form and give it to the contractor. I don't think it's up to the contractor to make the determination.

Also, I read a little further and got to the instructions for the ST-8 form included in the document. It specifically lists "paving of driveway" as an exempt improvement. It also states that homeowner should communicate with the division of taxation if there's any doubt - which reinforces to me that it's not a determination that is up to the contractor.

 

[scrapquitler]

We just had our driveway and front walkway completely redone at the same time as our neighbor. I had received 3 estimates. The first contractor said there would not be any tax charged so I just assumed that would be the same for all contractors. After completion (used third estimate) we received the bill and are being charged 7% sales tax which is about $500! I was not expecting this at all and am wondering if this contractor is just trying to take advantage of my neighbor and I. We are in NJ which may make a difference. From researching online it seems like this is definitely considered a capital improvement but I just want to make sure before I contact the contractor.

I'm not from New Jersey, so I don't know about New Jersey tax law, but where are these contractors located? If their business is located in a different city/county than the others, local taxes for that jurisdiction might vary from those of other cities or counties.