Check with your state's licensing board?

We plan to after the job is over but wanted to see if we are completely off base...

What does your contract say? If it says 15% on total then that is what it is. If it says 15% on products only then there you are. My contracts for time and materials jobs add markup to the total of all receipts, we don't spend the time to back out tax.

If you could ever get through all the red tape it would be interesting to ask someone with the state or county. Sounds illegal to make commission on local, state or federal tax.

The contract says materials/sub-contractor labor at 15% and the 3 page back-up shows prices for the specific raw material only -- no sales tax or carpet fees. This is why I questioned the mark-up for tax which adds up when 2 items are 30K. Next time I will press for a contract with these types of details included instead of relying on the communications during the bid process which our contractor assured us was enough clarity. Appreciate your view Ellsworth-Hallett Home Professionals.

leelee, plan to contact the State Contactor's Licensing Board after project completion and try to understand better. Seems like thay can do what they want whether sales tax is specified in the contract or not --- they have the power to stop your project dead in it's track. Very stressful but learned a lesson -- get the details in writing and don't rely on any representation made verbally or implied during the bid process. I would not have hired this individual if I understood this was their practice.

You can always go back and sue them in small claims, if it works out that it was likely improper. I had to laugh at the contrator's statement about not backing out the tax. Fine on a few hundred or couple thousand, but 30K?

Adivra, yes small claims is an option but just need to get through the next three weeks and do not intend to have him re-install the plumbing fixtures or window treatments at this point but we are pretty much stuck for the rest. Not a lot of trust flowing right now...

We own a mechanical contracting business. Most of our contracts are local State and Government facilities. Mark up is inclusive of all costs, material, freight, taxes, etc. This is the norm for most contracts. Sorry, probably not what you want to hear but I don't want you to feel like your being cheated. You may be able to fight it if the contract has the wrong prices. Tax should be included in those numbers.

Even if his Proposal referenced 15% on raw material with no Sales Tax and Fees?

No, if you have the prices of material in writing and taxes aren't included you may win this. It's hard to say without reading over the contract. I would contact your local licensing board now and ask them. Don't wait until after the job is done.

So let me see if I understand this correctly. The contractor bought materials for your job, marked them up and then is charging sales tax on top of the mark-up? Is that correct? For example, he buys flooring for $850 and charges you $1,000. He doesn't pay tax from his supplier as it's for resale where the tax will be collected from the end user, you.

Do you understand that he has to pay sales tax on that to the state as he's acting as their agent in collecting it at the point of sales just like McDonalds, WalMart, Home Depot and any other business that sells a taxable product. You would expect to pay sales tax if you bought a new car, wouldn't you so why do you have a problem paying the sales tax on the materials that go into your home? I don't blame him for shutting down the job. Why should he have to eat the cost of the sales tax because his clients don't understand that he's required by state law to remit the taxes due on what he sells? You owe him an apology.

BTW, I'm an accountant.

Reluctant to do so now as all I did was send an email last night asking about this somewhat minor charge and another that appeared to be a dump charge for another job and woke up at 6:00 to a voicemail from him "Listen very carefully...there will be no bill discussion or reconciliation...your job will be stopped at 5:00 unless you pay my invoice in full". Had several further communications today but not feeling comfortable being held hostage when we are within 3 weeks of the end. Feel more comfortable contacting Contractors State License Board after. Thanks for all the input...really shocked about where I am and never expectd this as I did what I thought was my due diligence.

Haleydaniels -- We paid for the Sales and use tax...he is taking 15% profit on the tax paid. Our contract shows mark-up of material in writing and taxes aren't included. We totally get we have to pay the Sales Tax and all fees but 15% to him on taxes/fees on 30K when it was not called out in the contract?

Thanks All --- I'll post when we have a resolution no matter the outcome! Thanks for taking the time to listen and respond..

You may want him to itemize things for you.
It's a little unclear, but I get he has a resale license or contractors license and has to pay the sales tax quarterly. So you are saying he is charging retail tax rates when he bought the material at his cost? Meaning he's charging tax at what the material would have been if you bought it retail and not through his contractors license. How much are you talking?

SandyC -- We paid the vendor directly including taxes and fees. His Invoice marks-up the 15% incuding the taxes and fees. Our Contract was for 15% raw materials only. No re-sale or use tax involved...

Barbara, you are a better human than I am. That voicemail would have made me violent. Hopefully, he has not been so demeaning and terrible throughout the entire renovation as he was with respect to a relatively simple billing inquiry. I cannot say whether you are right or wrong. That will be governed by the terms of your contract. It sounds like there is some ambiguity regarding this matter. Good luck!

Hopefully, he is not asking for payment of your full contract amount prior to all work being completed. Most contracts have the final payment of 10-20% of total sale held until completion.

Carol, He asked full payment for major paint job to be completed this Friday and I reminded him that there would be a lot of touch-up and he said he woukd hold 1K back in his account to ensure that is completed. All materials are paid 100% although wood and carpet not on jobsite. He is paid to date...

Definitely hold back your $1k, or whatever amount is stated in your contract, until you are completely satisfied.

I just had a floor installed and paid for the flooring and withheld installation payment until I inspected it thoroughly. I am happy to say the job was excellent but I sure learn a lot on this site. Never pay in full before the job is complete!

This contractor does this every day and you probably only rarely have need of a contractor. You are at a disadvantage because he knows how to word things so they sound good. He's a bully. If I'm getting all the details right, you picked up the materials and paid for them yourself at Prosource, correct? Haleydaniels brought up a point about him paying taxes but not sure if applies since it sounds like you paid for the materials and also paid taxes on materials. So maybe he has to pay more income tax which would be higher percentage than sales tax which is a different matter but maybe he's shooting himself in the foot. I hope so.

I think there is a lot of confusion on this issue. This has nothing to do with the contractor paying tax. This is about his mark up fee. Sorry Barbara if I'm talking for you. He is charging Barbara 15% mark up fee on material. He itemized the material but didn't give the total cost she paid with tax. She thought the 15% applied to the material amount less tax. In the final bill he added in the 15% on the tax. Hope that makes sense.

Yes, it is the mark-up on the tax...tax was paid in full but didn't expect a 15% mark-up. His bid shows mark-up on materials only not the tax.

If you have $2000 in sales tax, $300 is not worth stopping the job and the headaches associated. Delaying you project is probably much more expensive and much more stressful. On the other hand if the job is not going well for the contractor, i.e. he under bid the job and is in hot water of his own, this could explain the harsh attitude, not excuse it. Interpretation of a contract is a legal issue not a subjective one, that is why contracts have so much fine print and we should all read them. What we don't understand is an opportunity to learn, although after the fact can sometimes be expensive. in the end you will be faced with the choice of the expense of legal restitution or accepting the markup on the tax.

He has to do the labor to install, right? In our state (NM), a contractor has to pay gross receipts tax on services (labor), so that does not sound unreasonable as tax on his labor for CSG (customer supplied goods).

You should not pay profit and overhead on sales tax. That is a way some contractors get extra money in their pockets.

Can someone explain to me why the contractor can mark up the cost of materials when he did nothing other than install them? In my head, markup of materials is to cover things like sourcing, picking up, protecting, storing, delivering, etc. If he did none of that, how can he charge for it?

The contractor can price his job any way he sees fit. As long as the pricing is specified in the contract and any markup/discount is charged based on real invoices, the contractor specifies the pricing method. It is up to the customer to accept his method or negotiate before the contract is signed.

Ethically, neither a contractor nor anyone should have the legal right to charge a percentage of the taxed amount as part of a "plus x-percent". At the very least, if a business charges a customer a percentage of the tax as a markup, then that business should record this as pure profit.