How are contractors’ purchases taxed?

Generally speaking, contractors owe sales or use tax when buying materials to be incorporated into real property. Most states do not tax real property construction and services. However, some do. When contracted by agencies or organizations that qualify for a sales or use tax exemption, contractors are not always exempt. Each state needs to be reviewed individually. Contractors are generally not resellers of materials incorporated into real property; they are considered users and consumers of materials purchased for a job. However, the type of contract can change the tax implications.