SALT Report 2336 – The West Virginia State Tax Department has updated its sales and use tax publication regarding the capital improvement rule. The guide is designed to provide real estate owners, building contractors, home improvement contractors, carpenters, bricklayers, electricians, plumbers, roofers, heating and air conditioning contractors, pavers, landscapers, and excavators with information regarding the application of sales and use taxes to purchases of construction materials and to charges for certain services.
The guide is separated into two parts. Part 1 provides an explanation of the sales tax rules for those involved in the construction trade. Part 2 provides a list of jobs that are classified as either nontaxable “capital improvements” or as taxable services to buildings and other structures.
As a rule, capital improvements are any addition or alteration to real property that meets all three of the following requirements:
- It substantially adds to the value of real property or appreciably prolongs the useful life of the real property, and
- It becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property or article itself, and
- It is intended to become a permanent installation or to remain there for an indefinite period of item
Based on those requirements, if the end result is a capital improvement to the real property, then the service is considered “contracting” and is not taxable. However, if the end result is a non-capital improvement repair, alteration, or maintenance of real property then the service is taxable.
The Department has updated its list of the industries and types of nonprofit organizations for which a construction contractor may perform services and claim an exemption on its sales or purchases of services, machinery, supplies, and materials.
Additionally, the guide provides information regarding the sales and use tax collection and reporting obligations, the sales and use tax filing requirements, special rules, and exemptions specific to the industry.
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