October 20, 2020

How Real Estate and Construction Contractors Can Avoid Overpaying Sales and Use Tax

Whether you’re a real estate broker and independent contractor or a general or sub-contractor working in construction, sales tax for contractors can be complex and difficult to understand. There are many factors that affect taxability, and real estate and construction contractors may also be subject to exemptions based on the customer and the property’s function. In this time of uncertainty with the COVID-19 pandemic affecting many businesses, sales tax refunds can help recoup over-paid sales tax and put more money in your pocket.

Are contractors exempt from sales tax?

There are many circumstances where exemptions are allowed but understanding sales tax liability for a construction contractor can be a challenge. States generally do not consider contractors to be making taxable sales, but providing tax exempt services. Contractors are typically treated as the final users and consumers of materials and supplies they use on construction contracts and are liable for sales tax on purchases of those materials and supplies used in a contract. However, many states provide special treatment for construction contracts with exempt organizations if the purchases are related to the entities’ exempt functions and activities.

When can an exemption certificate be used?

In both Missouri and Illinois, a contractor’s purchases of tangible personal property can be exempt with a flow-through exemption, provided a contractor is contracting with an exempt organization. The contractor can obtain an exemption certificatefor purchases of tangible personal property and materials used for a specific contract for the exempt entity. In Missouri, a project exemption certificate is typically needed from the exempt entity and provided to the vendor when making such purchases. Not all states allow a flow-through exemption from exempt organizations, and each state’s rules need to be reviewed individually.

In Missouri, contractors are exempt on purchases of tangible personal property for use out-of-state on a construction contract with an entity authorized to issue an exemption certificate under that state’s law. In Illinois, tangible personal property sold to contractors who resell it as tangible personal property can be treated as a purchase for resale.

Are all contracts treated the same?

Determining the structure of the contract can also impact the taxability. A lump-sum contract will generally leave the contractor responsible for the tax on materials. Whereas, with a separated contract or a cost plus contract the sale may be deemed as part property and part sale of service which may be treated differently on the contractor’s sale to their customer.

These are just a few sales tax nuances and opportunities available to contractors. A clear answer to specific questions on a state-by-state basis will need to be determined by reviewing each state’s rules and regulations. Anders has the resources and expertise to quickly help determine opportunities for you.

A sales and use tax refund review can help find overpayments to keep more money in your business’ pocket during this tough time. Anders State and Local Tax advisors have the expertise to pursue these refunds and can do so on a contingent basis. Contact an Anders advisor below for more information on reverse audits.

All Insights

September 22, 2020

179D Tax Deduction Extended Through 2020 for Energy Efficient Building Improvements

Commercial building owners can now take advantage of the 179D tax deduction for energy efficient building upgrades through 2020. This deduction, which had been expired since the end of 2017, is for property placed in service between 1/1/2018 – 12/31/2020.  

Background on 179D

The 179D deduction helps incentivize energy efficient construction projects. This deduction was originally created as a temporary measure under the Energy Police Act of 2005 and was extended every year until it expired in 2017. A tax deduction of $1.80 per square foot that reduced the building’s total energy and power cost by 50% or more is available to owners of new or existing buildings who install the following:

  • Interior Lighting
  • Building Envelope
  • Heating/Cooling Ventilation
  • Hot Water Systems

Deductions of $0.60 per square foot are available for situations where expenditures partially qualify by meeting certain target levels or through an interim lighting rule issued by the IRS. For government-owned buildings, this deduction is transferable to the person or company responsible for the energy efficient design. Therefore, architecture and engineering firms that design government owned buildings may also claim this deduction when completing additional requirements.

New Legislation on 179D

Under the extender bill of 2019, the deduction is retroactively extended for tax years 2018, 2019 and available for 2020. Qualified buildings placed in service in 2018 and 2019 may be eligible to claim the 179D deduction.

Claiming 179D

Eligible building owners can claim the 179D deduction for up to $1.80 per square foot of the entire building for the installation of energy efficient systems into new or existing buildings. Taxpayers can now amend their 2018 tax return and apply the 179D deduction to their 2018 tax year.

The Anders Real Estate and Construction Group can help determine if your construction project would qualify for the 179D deduction as well as other tax credits and incentives. Contact an Anders advisor below to learn more.

All Insights

September 8, 2020

Downtown St. Louis Construction Update: Projects Continuing During COVID-19

As a downtown-based firm, we are especially interested in the projects that are going on in and around the city. Due to the uncertainty surrounding COVID-19, some projects have come to a halt while others continue to move forward.

St. Louis has a higher rate of growth for 2020 than many of its peer cities. For the first quarter of 2020, St. Louis saw construction project starts grow 84% compared to 2019. However, in April, the city saw a 76% decrease in the number of permits issued. This shows even though the number of permits is down, construction is still holding strong in St. Louis. Below are some projects that we have been keeping our eye on.

City Foundry STL

Slated to open mid-summer, this multi-use facility near downtown will house a food hall, bar, offices, shops and entertainment. Fresh Thyme has also signed a lease at this location. An exact opening date for the City Foundry will be announced later based on recommendations by health officials.

Cortex Hotel

The Aloft Hotel by Marriott, the first hotel in the Cortex tech district in Midtown, welcomed their first guests on June 8th when the hotel opened despite the ongoing pandemic. The amenities that were once closed to the public due to the COVID-19 pandemic opened on June 15th. They will be implementing procedures including additional cleaning and social distancing in common areas to protect guests and employees.

Ballpark Village Phase 2

Even as the coronavirus pandemic continues, One Cardinal Way is open and welcoming tenants as of August 1, 2020. The crane has been dismantled and hard hat tours are now available for individuals interested in leasing. This luxury apartment complex includes a rooftop pool and sundeck in addition to great views of Busch Stadium, downtown and the Mississippi.

Bar K

Bar K, a Kansas City – based bar and restaurant, has plans to open a new location in the Grove later this year with Nestle Purina being a minority investor. Bar K is a dog and people-friendly space. Included will be a dog park, bar, restaurant and entertainment space. Entry fees for dogs can be paid on a daily basis or through an annual fee. Individuals visiting with no animals are admitted with no fee.

Hotworx

Hotworx, a gym out of New Orleans, will be opened in the Element Hotel which is under development in the Midtown region. Hotworx uses saunas as workout rooms and has more than 140 locations throughout the United States. The St. Louis location will include 7 saunas that will have 10-12 workout options. High intensity workouts are limited to 15 minutes but yoga and pilates workouts can last up to 30 minutes. Members pay monthly fees that give them 24-hour access to the gym. Developers expect this location to open in the third or fourth quarter of 2020.

Overall, the construction in the downtown region is moving forward amid the coronavirus pandemic. The Anders Construction Group stays up to date on the latest projects in our own backyard. Stay tuned for more details on upcoming St. Louis construction projects.

All Insights

August 27, 2020

How COVID-19 Has Impacted Rental Income for Landlords and Strategies to Recover

The U.S. unemployment rate spiked to 14.7% in April; the highest it has been since the Great Depression. High unemployment has caused landlords to be creative on how to solve issues arising from tenants that are unable to meet their rental agreement obligations. Landlords are using different techniques to keep vacancy rates down and rental income coming in. Some solutions landlords are considering include rental forgiveness, postponement or seeking outside short-term financing. 

Protection from Evictions Under the CARES Act

Previous to COVID-19, if tenants failed to meet rental obligations landlords had the option to terminate the tenancy by filing an eviction lawsuit to have the tenant physically removed. Health and safety concerns related to COVID-19 have halted evictions in some areas which has led landlords to think of other ways to cope with the lack of rental income. One of the ways landlords are managing their tenants’ inability to pay rent is by allowing postponement of their payments with an agreement that it will be repaid at a later date, either in a lump sum or spread out. Some have done this by agreeing to allow tenants to repay their missed payments when they receive government stimulus funds or by extending lease agreements and allowing payments to be made at the end of the lease. 

Every landlord strives to generate profits after covering any debt servicing with their rental property. However, with the affects of COVID-19, cutting losses has been the best option for some landlords. Temporarily lowering rent rates for tenants has allowed landlords with mortgages to retain tenants along with having the ability to meet their short-term financial obligations and not default on their loan.

How Landlords Can Recover

Having a financial safety cushion is important for landlords in times like these. Seeking a line of credit or having the assurance of being able to obtain a loan from a private lender is important as part of a disaster recovery plan. Many landlords have taken these measures to protect themselves and be better prepared in case of emergency.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential impacts and benefits. Visit our COVID-19 Resource Center for more resources. To discuss your situation and recovery options, contact an Anders advisor below. Learn how Anders works with the real estate and construction industries.

All Insights

August 18, 2020

Why Real Estate and Construction Companies Need to Update Technology to Continue Adjusting to the New Normal

As businesses are still facing unusual times with unknown futures, some companies are still completely intact, some are struggling, and others are still awaiting the whiplash of a fluctuating economy. All of this unknown will undoubtedly shrink a pipeline of projects to bid, impact leases, reduce or modify office space buildouts, and ultimately change the way businesses view their real estate and construction needs for their companies.

The Growing Need for Agility

Agility had a whole new meaning in spring of 2020, and technology played a huge part in that. Many companies were scrambling to evaluate whether their networks would be able to sustain an entire company working from home and taxing network firewalls and internet bandwidth. The real estate and construction industries specifically had to navigate having employees at a construction site or a dispersed field of agents in both a technical sense and workaday sense.

The construction industry typically spends significantly less on technology than most other industries. Those who made the investment in technology and were able to pivot easily were able to avoid some of the issues making the transition to a remote workforce. Those who had put off increasing that internet bandwidth, buying that bigger firewall or moving that workload to the cloud were behind on multiple fronts within a few days. Not to mention the remote support capabilities necessary to provide help for employees in all things technical. While the late adopters may have struggled, it’s not too late to get your technology up to speed as we continue to adjust to the new normal.

New Security Threats

As if maintaining productivity didn’t require enough attention, hackers immediately went to work to find ways to find vulnerabilities in the newly relocated workforce. Cybersecurity training, VPN connectivity, password policy and home network security were important topics pre COVID-19 but have now been taken to a new level. Those who had made their best efforts in these areas were thankful they did prior to COVID-19, but those who didn’t are forced to orchestrate a plan to deploy remotely without causing a significant disruption. A quick network assessment to evaluate your current technology framework will help identify areas to ramp up your security

If certain technology concerns that needed attention pre-pandemic have become mission-critical items during the pandemic, re-evaluating budgets are a very important decision. Bigger objectives that have more agility, like moving workloads to the cloud, or properly configuring a firewall with cybersecurity best practices require an experienced technology partner. Contact an Anders advisor below to make sure you are getting the value and service you need to move your business forward or learn more about Anders Technology.

All Insights

August 13, 2020

Proposed Regulations Define “Real Property” for Like-Kind Exchanges

The IRS released proposed regulations defining property that can qualify for like-kind exchanges under changes imposed by the Tax Cuts and Jobs Act (TCJA). Prior to the TCJA, some exchanges of personal property, such as licenses, aircraft and equipment would qualify for a 1031 like-kind exchange. After the passing of the TCJA, only real property qualifies for exchanges. These proposed regulations offer some clarity on the definitions of property in 1031 exchanges.

Real Property for Like-Kind Exchanges

Under the proposed regulations, real property includes:

  • Land and improvements to land
  • Unsevered crops and other natural products of land
  • Water and air space superjacent to land

Land and Improvements

“Improvements to land” is a broad statement and is broken down as an inherently permanent structure and its structural components. Inherently permanent structures include buildings or other structures that are permanently affixed to real property for an indefinite period of time.

A structural component is any asset that is a constituent part of an inherently permanent structure. Structural components only qualify as real property if the taxpayer holds interest in both the component and physical space of the inherently permanent structure.

The proposed regulations list additional structural components and provide factors for determining whether components are structural components. These tests include:

  1. The manner in which the asset is affixed to the real property
  2. Whether the asset is designed to be removed or remain in place
  3. The damage that removal of the asset would cause to the item or real property
  4. Any circumstances that suggest the asset was not affixed for an indefinite period
  5. The time and expense required to move the asset
  6. Whether the component is listed during the construction of the building structure

Unsevered Crops and Natural Products

The proposed regulations state that unsevered natural products are generally real property. These products include crops, plants, timber, mines, wells and other natural products. These items are no longer considered real property when they are removed from the land.

Intangible Assets

An intangible asset is considered real property as long as the asset:

  • Gets its value from the real property
  • Is inseparable from the property
  • Does not create income other than consideration for the use or occupancy of space

An intangible asset as real property would be a license or permit that is used solely for the use or occupation of land or permanent structure and is in the nature of the lease or ownership.

If you are considering selling your property and would like to further discuss what property is qualifying under the proposed regulations, contact an Anders advisor below. Learn how Anders works with the real estate and construction industries.

All Insights

April 20, 2020

Qualified Improvement Property Now Eligible for Bonus Depreciation Under CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided a long anticipated technical correction for Qualified Improvement Property stemming from the 2017 Tax Cuts and Jobs Act (TCJA).

Pre-CARES Act

The TCJA eliminated pre-existing definitions for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property and replaced those definitions with one category called qualified improvement property (QIP). Under the TCJA, QIP fell into the 39-year recovery period for nonresidential rental property, making QIP investments ineligible for 100% Bonus Depreciation.

QIP Technical Correction

The CARES Act provides a technical correction to the TCJA, designating QIP as 15-year property and eligible for 100% Bonus Depreciation. For alternative depreciative system (ADS) purposes, QIP is recovered over 20 years.

What You Should Do

Because of this technical correction (retroactive to January 1, 2018), taxpayers can file amended returns to claim bonus depreciation for 2018 and 2019 or file for a change of accounting method with Form 3115 to fix this error on their 2018, 2019, or 2020 tax return.

In addition to the QIP technical correction, the CARES Act also temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carry-back is allowed (taxpayers can elect to forgo the carry-back).  This could result in tax savings for taxpayers claiming additional depreciation deductions and potential refunds of taxes paid.  Contact an Anders advisor to see if these situations make sense for you.

Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

All Insights

March 5, 2020

Thomas E. Squires

March 5, 2020

Natalie A. Schmidt

March 5, 2020

Carl J. Toler

Keep up with Anders

Want to keep up with all the latest insights from Anders? Subscribe and receive the information that matters to you.

  • This field is for validation purposes and should be left unchanged.