Purpose: This Informational Publication describes how materialmen may remit sales and use taxes on certain sales of building materials and services to real property as and when actually paid by the purchasers to whom the materialmen have extended credit, instead of remitting the full amount of tax at the time of the transaction as generally required by law.
Background: Generally, sellers of tangible personal property and taxable services must remit tax on the entire amount of the gross receipts from a transaction on the return for the period in which the transaction takes place. The pay-when-paid provision allows certain sellers of building materials and services related to these materials an exception to this general rule.
Definitions: A materialman, for the pay-when-paid provision, 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 be considered a materialman, a person must also be entitled under Chapter 847 of the Connecticut General Statutes to file a mechanic’s lien against the real property to ensure payment for the materials or services.
Building Materials means materials that are incorporated as an improvement or repair to real property. The term also includes tools and other items that are used to improve real property. The term contractor includes a general contractor, a subcontractor, a repairman, and a property owner acting as his or her own general contractor.
Qualifying for Pay-When-Paid Status: A person seeking Department of Revenue Services (DRS) permission to collect and remit sales tax on a qualifying transaction when actually paid by a contractor must file an application by July 1 of each year and demonstrate to the satisfaction of DRS that, in two out 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 issues Form REG-20, Application for a Materialman to Remit Sales Tax Under the Pay-When-Paid Method. A materialman must file this application by July 1 each year in order to obtain pay-when-paid status. DRS will respond to a properly completed application with a letter authorizing the materialman to use the pay-when-paid method on qualifying transactions.
Deadline to Submit Application: DRS only accepts applications filed on or before July 1 of each year. The applications are considered timely filed if received, or if the date shown by the U.S. Post Office cancellation mark is, on or before this date.