Hello, I am a CPA in Arizona and am having a heck of a time getting
home builders to give me the sales tax amount that was included
in the purchase of some of my clients' homes. One used Private Letter
Ruling #8249010 as the resource backing up their claim that the
sales tax included in the purchase price of a new home was not a
deductible sales-tax expense. Now mind you, this PLR was written
in 1982, but I'm wondering if it still applies to the current situation.
Thank you so much for your time.
The sales-tax deduction was eliminated almost 20 years ago. For 2004
and 2005, an individual can choose to claim the higher of their state
and local income taxes or their general state sales tax. An individual
can determine sales tax paid based on actual expenditures or can use
a combination of IRS provided tables plus the tax on certain selected
"large" ticket items. In order to determine what is general
state sales tax, we need to look at the rules as they existed prior
to repeal in 1987.
The term "general sales tax" is defined
in section 164(b)(2)(A) of the Code as a tax imposed at one rate
on the sale at retail of a broad range of classes of items.
Section 164(b)(5) of the Code provides that if the
amount of any general sales tax is separately stated, then that
amount will be treated as a tax imposed on and paid by the consumer
as long as the consumer pays the stated amount to the seller.
The private letter ruling that you refer to deals
with an Arizona builder and a gross receipts tax on a builder's
income and, accordingly, the tax is not considered a general sales
tax, but rather a tax on gross receipts.
Further, since most home builders buy the material
and either rebill it to the client or include it in the total contract
price, the homeowner does not pay the "stated amount to the
seller" (that is, the building material supply house). Accordingly,
even though there is sales tax paid for the materials, it is not
deductible by your client as sales tax. Also see PLR's 8234130 and
For the sales tax on the materials to be deductible
by the homeowner, you have to look at Rev. Rul. 58-292 1958-1 C.B.
106. The revenue ruling points out two situations that would allow
a homeowner to deduct sales tax on material purchases:
- If the homeowner were the contractor, or
- If the homeowner had the materials billed to him
and he paid it directly to the seller.
To claim the deductions, you would have to modify
your contract with your contractor and remember that sales tax is
not deductible for the alternative