Sales tax and contractor's tax on invoices in Mississippi

Mississippi taxes contractors in two ways. A prime contractor on a nonresidential job over $10,000 pays a 3.5% contractor’s tax on the contract price, while homes and smaller jobs are taxed at the regular retail rate: on the materials, on the gross income of the listed trades, or on the installed price.

Registration: a permit, and a certificate for contractors

Mississippi taxes the sale of tangible personal property and various services, on gross proceeds of sales or on gross income, depending on the type of business. The seller collects the tax from the ultimate consumer or purchaser and holds it in trust for the state. There’s no fee for a sales tax permit. Every general or prime contractor and subcontractor improving real property in Mississippi must also get a Sales and Use Tax Certificate of Registration, however many jobs it has.

Nonresidential jobs over $10,000: the 3.5% contractor’s tax

Mississippi’s regulation levies the contractor’s tax on the total contract amount of every contract over $10,000, except residential construction, for constructing, building, erecting, repairing, grading, excavating or adding to improvements such as a building, a bridge, a fence, or an air conditioning, heating or electrical system.

• Who pays: the prime contractor, on all nonresidential, commercial contracts, even when the owner is a government, exempt or nonprofit entity. It can’t deduct amounts paid to subcontractors, architects, engineers or landscapers.
• Subcontractors on a qualified prime contract owe no tax on the subcontract price unless the prime contractor fails to pay.
• Material Purchase Certificate (MPC): before work begins, the prime contractor applies for an MPC for the contract. It lets the contractor and its subcontractors buy, tax-free, the materials and services that become a component part of the structure.
• Paying before work begins: on a contract over $75,000, the contractor’s tax and any use tax due must be paid before work begins, unless you file a bond with the Department of Revenue. Without a physical location in Mississippi, you must prepay the taxes due on every contract over $10,000 or bond it.

Apartments and condominiums aren’t residential. For the contractor’s tax, residences exclude hotels, motels, apartments, condominiums, nursing or retirement homes, churches and other commercial establishments. An “apartment” is four or more dwellings on continuous land with kitchen facilities and common ownership, rented to tenants rather than transient guests; a group of single-family homes isn’t one. Building, renovating or repairing apartments and condominiums is subject to the 3.5% tax unless the job is $10,000 or less.

Homes and jobs of $10,000 or less: the regular retail rate

Building, repairing or adding to a residence, such as a home, mobile home, summer cottage, or fishing or hunting camp, is excluded from the contractor’s tax. Materials and services for residential construction are taxed at the regular retail rate, the state rate on this page. The Department’s FAQ says contractors on residential homes pay that rate on materials and taxable services.

On contracts of $10,000 or less:

• If the work includes a service taxed under Section 27-65-23 (the listed trades below), you owe the regular retail rate on your gross income.
• If it doesn’t, you owe no tax on gross income, but you pay sales or use tax at the regular retail rate on all your taxable purchases.

Taxed trades: a listed set of services

Section 27-65-23 taxes the gross income of listed businesses at the state rate on this page. The list includes air conditioning installation or repairs; electrical work, wiring and electrical equipment repairs or installation; grading, excavating, ditching, dredging and landscaping; insulating; plumbing and pipe fitting; refrigerating equipment repairs; termite and pest control; tin and sheet metal shops; and welding.

When a business on that list works as a prime contractor, for more than $10,000, on the nonresidential construction or repair work the contractor’s tax covers, it pays the 3.5% contractor’s tax instead.

Roofing, siding, tile and fences: tax on the installed price

If you sell and install personal property, your gross proceeds include the installation charges.

• A contract under $10,000 that’s mainly for selling and installing property such as roofing, tile or carpets is taxed on its full installed price, labor and materials, at the regular retail rate.
• So is a similar contract for a noncommercial structure, in any amount.
• A commercial contract over $10,000 to install roofing, siding, tile, glass, floor covering or fencing may qualify for the 3.5% contractor’s tax.

Your invoice and the contractor’s tax

• Sales tax: on the listed trades’ gross income and on installed sales, collect it from your customer, the ultimate consumer or purchaser. A job on which you owe no tax on gross income and pay tax on your purchases instead, or one under the contractor’s tax, carries no sales tax for you to collect. If you collect too much and can’t refund it to the customer, Mississippi law requires you to pay the over-collection to the state.
• Contractor’s tax: the Department says it’s imposed on you, not on your customer, whoever owns the property, and the project owner can’t pay it in your place. Its Guide for Construction Contractors builds the tax into the bid: multiply the contract total before tax by 1.0362694. In its example, a $100,000.00 contract becomes a bid of $103,626.94, which includes $3,626.94 of contractor’s tax. That total is the bid and the amount to qualify the contract with the Department.

Local tax: Tupelo and Jackson

Mississippi has two local sales taxes, both levied by cities, and none at the county level. Tupelo adds 0.25% on all retail sales by businesses within its corporate limits and on services provided there. Jackson adds 1% on certain retail sales by businesses within its limits and services provided there; Notice 72-14-2 lists the sales excluded. Many cities and counties also levy tourism and economic development taxes, typically on hotels, motels, restaurants and bars.

Landscaping and grass cutting

• Landscaping is a taxed service: grading, excavating, ditching, dredging or landscaping businesses owe sales tax at the regular rate on gross income. As a prime contractor on commercial landscaping over $10,000, you owe the contractor’s tax instead.
• What counts: modifying the grounds by contouring, forming or functionally altering the land, including planting flowers, shrubs or trees, establishing lawns and gardens, and building landforms, retaining walls, flower beds and water features.
• What doesn’t: tree trimming, grass cutting, hedge trimming and similar maintenance. Nor does planting or spreading materials the owner provides, when you list the charges for that work separately on the invoice.
• In a contractor’s-tax contract, amounts for non-taxable activities such as grass cutting and tree trimming may be excluded from the taxable amount.

Watch-out: qualify the contract before work begins

A contractor taxable under Section 27-65-21, the contractor’s tax, must apply for an MPC identifying the specific contract before work begins; contracts for residential construction don’t qualify for one. If you don’t get the MPC before work begins, or don’t prepay or bond the contractor’s and use taxes, you can’t perform the contract until you do. A 10% penalty is due on all deficiencies.