Could someone help me to better understand how GC’s are handling reporting actual costs for sales tax purposes on a monthly basis on MRRA projects where the GC has provided an AZ5005 from to their subs?
Do GC’s providing an AZ5005 on MRRA projects have a way of accurately reporting/remitting sales tax on the sub's materials without needing to request actual costs from their subs?
I am curious as to why you would provide a 5005 on an MRRA project? MRRA projects are taxable at the point of sale. If you are providing the 5005 it would be up to the GC to report the project income as you would on a MOD.
133 E. Comstock Dr., Suite 1
Chandler, AZ 85225
I would direct you to Dave Miller's overview regarding use of this form. The final legislation and DOR form modifications allow the GC to utilize the 5005 on MRRA as well as prime contracting jobs. As Dave notes, it becomes a function of what level in the contracting "chain" will bear responsibility for the tax.
As to Aaron's initial question, we have the subs break out materials; have minimal push-back on this from our subs. But I do hear that is not always the case!
We have our subcontractors break their billing out between labor and materials on MRRA projects.
Diane Travis, CBT
Haley Construction Co
302 W. Willis, Suite 101
Prescott, AZ 86301
Attached is a copy of TPN - 15 Revised June 2015, issued by Arizona Department of Revenue to "help" explain the quagmire that is Arizona transaction privilege tax for contractors. Q & A 20 addresses your question. Contractors performing either work classified as prime contracting or work classified as MRRA can issue a form 5005. By issuing the form 5005, that contractor (General Contractor) is assuming responsibility of remitting the tax due on the project, for prime contracts at the prime contracting tax rate, and for MRRA contracts at the retail tax rate on the materials incorporated into the project. If a general contractor issues a form 5005 on an MRRA project, they would need to collect the cost of materials on the projects from the subcontractors billings by having the subcontractor break out the material costs vs labor and other.
The reason that a general contractor would want to issue a form 5005 on a MRRA project would be that in the event it is determined that the project did not meet the definition of an MRRA project, then the general contractor does not get credit for the tax paid previously paid by the subcontractors even though the subcontractors are passing it through to the general contractor. In the event of an audit, and ADOR determines a project does not meet the definition of an MRRA project, the general contractor would be responsible for the tax. The definition of MRRA is subjective and can be quite confusing to say the least.
One additional comment, my firm does not follow this practice, we do not issue form 5005 for MRRA projects. We are confident in our interpretation of the definitions. If a project is questionable, we treat it as prime contracting and issue the form 5005 and assume the tax responsibility. As a 'hybrid' contractor that performs both types of work, we are assuming an exposure. For sure this is an issue that the Arizona Legislature needs to re-visit.