One area of misunderstanding for contractors isn’t the work they do: it is understanding the Wyoming Sales Tax rules.
Honestly, the rules can get confusing. As a contractor who is located in or works in Wyoming, understanding the sales tax myths can help you keep money in your pocket.
Let’s look at some common misunderstandings that can cost contractors money or create compliance issues.
Misconception #1: “A Service Business Doesn’t Charge Sales Tax”
Charging sales tax depends on whether the work is on real property or tangible personal property.
Wyoming defines real property as land and appurtenances, including structures affixed thereto and related annexations or permanent attachments. Simply put, the land, the physical structures attached to it, and any associated rights or improvements that transfer with ownership.
They use a sensory test to determine whether property is tangible personal property. You can use your senses to perceive tangible personal property (see, touch, feel, weigh, measure, or otherwise sense it). If you can physically interact with an item by seeing, touching, weighing, or measuring it, it is tangible.
Services provided for the repair of tangible personal property are taxable. Labor charges on real property improvements (which is what most contractors do) are not subject to tax. But materials are taxed to the contractor when purchased.
The confusion lies with what the contractor should charge sales tax on.
Also, contractors may not be accounting for material costs properly. This can lead the contractor to absorb the sales tax and not include it in the materials cost to the customer.
To summarize, labor and service charges for the repairing or improving of real property are NOT TAXABLE. Tangible personal property is TAXABLE.
Misconception #2: “Sales Tax Can Be Added as a Line Item on the Customer’s Invoice”
An HVAC contractor purchases $5,000 in supplies for a new project. At the time of purchasing, the contractor pays the 4% Wyoming sales tax, plus any applicable local sales taxes.
The contractor should not add a separate line for the sales tax the contractor paid on the materials to the client’s invoice. They also can not charge the customer sales tax on top of their quoted price when working on real property.
The contractor can include the sales tax in their overall contract price. In our example, the contractor may quote the customer a lump sum of $8,000, which includes materials, labor, and the sales tax on materials paid by the contractor. The customer’s invoice only shows a charge of $8,000.
Under Wyoming sales tax laws, the contractor is the consumer who has paid the tax. Sales taxes can be rolled into the materials cost.
Misconception #3: “It Doesn’t Matter How I Prepare My Contract For Work on Real Property”
Service providers typically prepare contracts in one of two ways: lump-sum or itemized/time and materials contracts.
A lump-sum contract combines all charges into a single price. It is the contractor who pays sales tax on materials, and the customer sees one total.
An Itemized/Time & Materials Contract separately lists the materials (which are taxable when purchased) and labor charges.
A Lump-sum contract is simpler for most service trades working on real property. Itemized contracts require extra care to ensure you are properly recouping any sales tax you paid and abiding by Wyoming Sales Tax rules.
Accounting best practices include keeping a clear record showing what you pay in sales tax on materials. Regardless of how you invoice customers, it is important to maintain internal accounting records that separately show labor and materials.
Materials Versus Labor Breakdown
Let’s look at an HVAC contractor again who is working on real property.
The contractor pays Wyoming sales tax (plus local sales tax) on:
- Furnaces, air conditioning units, heat pumps
- Ductwork, insulation, refrigerant
- Thermostats, sensors, controls
- Copper tubing and fittings
They do NOT charge sales taxes on:
- Installation labor
- Service/maintenance labor
- Repair labor (for real-property attached systems)
And they do not show sales tax anywhere on the invoice to their client.
This is an example of one specific trade. Each trade would have a similar breakdown based on the service they provide.
Sales Tax Rules For Tangible Personal Property
If your company is repairing or servicing equipment that is tangible personal property and not real property, different rules apply.
For example, our HVAC contractor is removing a portable HVAC unit from a home for repair. It is considered tangible personal property. Wyoming sales taxes would apply to the labor to repair the unit. The contractor pays the sales tax when purchasing the parts required for the repair.
The line between real property improvements and tangible personal property repairs is easily confused. Understanding the difference will protect a contractor from potential audits.
Record Keeping Recommendations
- Detailed Records – Track all material purchases and sales tax paid. Separate materials from labor costs in your accounting records. Keep receipts and invoices from suppliers.
- Contract Structure – Be consistent in how you quote and invoice jobs (lump-sum or itemized). Document your pricing strategy so you can explain it in the event of an audit.
- Price Correctly – Don’t forget to factor in the cost of sales tax on materials when quoting. Include the sales tax in your material cost, and not as an individual line item. Correct pricing and invoicing will improve margins and keep you compliant.
- Verify Local Sales Tax – When you are required to charge sales tax on your invoice, check the sales tax rate for the county where the work will be performed. Sales tax can vary from county to county.
- Consider All Your Services – If you offer repairs on both real and tangible property, take time to review and understand the rules for each.
- Confirm Your Information – Go to the Wyoming Department of Revenue (DOR) to verify your responsibility. An accountant familiar with Wyoming sales tax rules can also be a good resource for you.
It is important to understand sales tax regulations so you can invoice properly, safeguard your profit margins, and avoid audit issues.
If you have questions about the Wyoming sales tax rules, contact SAP Virtual Resources for a consultation.