Current through Register Vol. XLI, No. 38, September 20, 2024
2e.1. The business
of contracting is taxable under the municipal business and occupation tax law
and the gross income derived therefrom must be reported under the contracting
classification. See Section 1a of these rules as to definition of
"Contracting," "Prime Contractor," "Subcontractor," "Buildings or Structures,"
"Contracting, Repairing, Decorating or Improving" and "Speculative
Builder".
2e.2. Prime and
subcontractors, taxable on gross income with no deductions therefrom. -- A
prime contractor, one who furnishes work or both materials and work under a
written or oral contract, for the construction, alteration, repair, decoration
or improvement of a new or existing building or structure or any part thereof,
or for the alteration, improvement or development of realty, must report his
gross income under the contracting classification without any deduction on
account of any expenses incurred. If the prime contract executes a contract
with another for a portion of the job or project, the prime contractor receives
no deduction from gross income on account of any payments made to the
subcontractor. The subcontractor will also be taxable on his gross income under
the contracting classification.
2e.3. Contract entered into with governments.
-- Gross income received by a person for contracting activities performed for
the State of West Virginia, the federal government or any of their
instrumentalities, agencies, boards, commissions or political subdivisions,
etc., or performed for nonprofit organizations is taxable and shall be reported
under the contracting classification. The fact that the owner is a governmental
unit or a nonprofit organization does not relieve the contractor,
subcontractor, suppliers or any other person from liability for municipal
business and occupation tax on the full amount of gross income.
2e.4. Form of contract.
2e.4.1. Persons engaged in the contracting
business shall report the entire gross income under the contracting
classification, regardless of whether the contract is a turnkey contract, lump
sum contract, per unit contract, cost plus fixed fee contract, or other
contract having a similar basis. Gross income received from a contracting
activity must be reported under the contracting classification and the manner
of performance, basis of determining cost, fee or income or form of contract
shall not alter the definition of contractor or of contracting and shall not
change the taxability of such income from the contracting classification to
another classification. A contracting activity remains a contracting activity
regardless of what the parties may name it and regardless of the manner in
which the parties may make payment and perform the work.
2e.4.2. The measure of the tax under the
contracting classification is gross income and includes all items of cost where
the contractor has incurred liability. The cost of materials and labor can only
be exempted from the measure of the tax in those cases where the contractor is
not liable to vendors or workmen for payment. In those cases where the
contractor contends that he has not incurred a municipal business and
occupation tax liability because he acted solely as agent for the owner, the
burden of proving alleged principal-agency relationship shall be upon the
contractor.
2e.5.
Separate contracts for labor and materials.
2e.5.1. In cases where the contractor enters
into a separate contract for the furnishing of materials by the contractor and
a separate contract for erection of such materials by the contractor, the gross
income from both contracts is taxable under the contracting classification,
unless it can be proved by the contractor that passage of title of the
materials was not dependent upon the erection of the materials by the
contractor and that the sale of such materials is, in fact, a separate and
distinct transaction, taxable under the municipal business and occupation tax
law, as a retail or wholesale sale, as the case may be. The contract to furnish
materials shall not be considered a separate and distinct transaction from the
contract to erect the same, unless it is established by the contractor to be a
complete arm's length transaction with no dependency existing between the
contract for materials and the contract for erection. The burden of proving any
alleged arm's length transaction shall be upon the contractor.
2e.5.2. A separate purchase order for the
furnishing of work or labor and a separate purchase order for the furnishing of
materials which constitute the contract(s) between the parties shall be treated
in the same manner as set forth in the paragraph above.
