You asked if the sales tax applies to both building materials and labor for a commercial building renovation and only to materials for new construction. If the answer is yes, you also asked what the original rationale was for such a distinction.

SUMMARY

It is true that, under state law and Department of Revenue Services (DRS) regulations, (1) building materials are taxable regardless of whether they are used for new construction or changes in an existing building but (2) contractor services are taxable only when rendered to an existing income-producing building. It is not possible to establish the rationale for the distinction from the legislative record.

SALES TAX APPLICABILITY

The state sales tax applies to sales of both tangible personal property and to certain enumerated services.

Building Materials

DRS regulations require a building contractor to pay sales tax as a consumer on any materials, supplies, or equipment he buys or leases to fulfill a building contract. The regulation makes no distinction between materials used to renovate a building and those used in new construction.

The only exceptions to the taxability rule for materials are for contractors who (1) are in the business of selling building materials or supplies at retail or (2) sell the materials or supplies at an agreed-upon price and then render services in connection with them for an additional price (Conn. Agencies Regs. § 12-426-18).

Contractor Services

State law applies the sales tax to certain services when they are provided to industrial, commercial, or income-producing real property (other than an owner-occupied dwelling with no more than three units). The services include management, electrical, plumbing, piping, painting, and carpentry (CGS § 407(37)(I)).

DRS regulations specify that these services are taxable only if they are provided to existing property, not if they are provided as part of new construction. The regulations also expand the statutory list of taxable services to include roofing, siding, excavating, foundation work, plastering, air conditioning, ventilation, welding, flooring, sandblasting, carpeting, elevator or escalator work, wallpapering, masonry, refuse removal, demolition, and structural inspection (Conn. State Agencies Regs. § 12-407(2)(i)(I)-1(c)(1) and (g)(1), copy enclosed).

ORIGINAL RATIONALE

Nothing in the legislative record explains why the sales tax on contractor services applies only to work on existing buildings and not to new construction. The original law subjecting contractor services to the sales tax was enacted in 1975 as part of a much larger tax bill (PA 75-213). Neither the original nor the current law expressly distinguishes between services to new and existing buildings, but DRS regulations make it clear that the tax does not apply to new construction. Although the DRS’ current regulations were adopted in 1991, Michael Galliher of the department’s research division told us that the distinction between new and existing buildings in DRS regulations dates from 1976.

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