Connecticut Updates Guidance on How Materialmen May Use Pay-When-Paid Method

The Connecticut Department of Revenue Services (DRS) has issued an information publication, effective September 24, 2018, providing updated guidance for materialmen using the pay-when-paid method. The pay-when-paid provision allows materialmen to remit sales and use tax on sales of building materials and services to real property when actually paid by the purchasers to whom they have extended credit. A “materialman” is a person who furnishes building materials or services to a contractor for the construction, raising, removal, or repair of a building or the improvement of real property.  To qualify for pay-when-paid status, a materialman must file an application by July 1 of each year and demonstrate to the satisfaction of the DRS that in two of the last four calendar quarters:

• The seller was a materialman as the term is used in Chapter 847;
• The materialman is authorized under Chapter 847 to put a mechanic’s lien on real property; and
• At least 50% of the materialman’s sales of building materials (not services) were to contractors.

DRS Form REG-20, Application for a Materialman to Remit Sales Tax Under the Pay-When-Paid Method, should be used to file the application. The Materialman Permits expire each year on June 30^th. This information publication modifies and supersedes the previous Informational Publication 2017(21), Connecticut Department of Revenue Services, April 28, 2017. (Informational Publication 2018(4), Connecticut Department of Revenue Services, September 24, 2018)