Contractor’s Fee for Overhead Costs Not Taxable in Rhode Island

Tuesday, January 30th, 2018

Construction materials on desk.
Rhode Island

The Rhode Island Division of Taxation recently ruled that markup fees charged on a construction contract were not taxable.

The taxpayer was a construction contractor that charged its customers for labor, materials, and a 15% markup fee. The taxpayer testified that the 15% fee covered overhead costs. The Division argued that the fee was for materials since the taxpayer separately stated materials charges on invoices.

Rhode Island does not tax contracting services, but requires contractors to pay sales tax on materials unless the contractor is acting as a retailer. If the contractor is acting as a retailer, the contractor should charge the customer sales tax on materials. The ruling determined that the taxpayer's fee was for overhead costs, not materials, and was therefore not taxable.'s Fee for Overhead Costs Not Taxable in Rhode Island

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