Senate Bill 1373

A new proposed bill could substantially increase the sales/use tax burden on certain contractors.

Senate Bill 1373 primarily targets asphalt and cement paving contractors, but as drafted, it could also affect stucco contractors who mix aggregate, sand, cement, and water to make stucco, or small concrete businesses that rent portable concrete mixers to lay patios.

Currently contractors are generally considered consumers of materials they furnish and install.  For asphalt or concrete paving contractors, this means contractors pay tax on their cost of the asphalt or concrete purchased.  But what if a contractor owns their own quarry owns their own crushing plant, and produces their own asphalt or concrete?  These vertically integrated companies do not pay tax on their cost of materials because they already own the rock in the quarry and their own manufacturing labor to produce their materials isn’t taxable.  This bill singles out aggregate based businesses, even though many other contractors are also vertically integrated.  For example, a heating and air conditioning company may purchase prefabricated sheet metal duct work or they may have their own fab shop and produce it themselves.  If they purchase it prefabricated they will pay tax on their cost which will include the fabrication labor, and mark-up.  If they have their own manufacturing facility, the tax burden is only on the cost of their materials.  Likewise, a cabinet contractor who buys prefabricated cabinets, would pay tax on the entire cost (which again includes the labor to fabricate it and the mark-up) while the cabinet maker who makes his own cabinets in most cases (assuming their cost of installation is more than 10% of the total cost) only pays tax on the cost of the wood and other materials. The list of vertically integrated contractors goes on and on but the point is that this bill only targets aggregate based contractors.

This bill would make vertically integrated aggregate companies retailers of the concrete or asphalt.  This not only takes away the advantage they had, but puts them at a greater disadvantage with their competition that is only liable for tax on their cost.

This legislation clearly penalizes concrete and asphalt contractors for innovative business practices, for taking the necessary risks by investing capital necessary to buy quarries, asphalt and/or concrete plants, and discriminates against one segment of contractors.