An excavation business” sales of sand and gravel as part of improvements to realty are subject to Indiana sales tax because the sales occurred under time and materials contracts. A contractor/retail merchant must collect and remit sales tax when it converts construction material into realty and separately states the labor charges and the construction materials costs. The excavation business did not have contracts for the work performed. The business purchased tangible personal property, marked it up then sold the property to its customers at the marked up price. The business separately stated the costs of labor and the costs of the property on its invoices. The business was operating as a time and materials contractor therefore the sales of sand and gravel are subject to Indiana sales tax. Improvements to real property performed under a lump sum contract are not subject to sales tax. Rather the contractor owes use tax on the cost of the materials incorporated into real property. (Letter ofFindings No. 04-20110582, Indiana Department of Revenue, July 25, 2012)