Sales Tax Due on a Wall on the Border

Bloomberg recently wondered whether the wall along the U.S./Mexico border which turned up in some of the presidential primary debates would involve sales and use taxes.

The first question is, who would actually build the wall? If it’s the Army Corps of Engineers, they probably won’t be paying sales tax on the materials, but civilian contractors would. Either way, the materials would make a nice sale for the state where they’re sourced, and civilian contractors could create a nice sales tax windfall for the state.

Depending on the state, sales and use taxes could be passed along or built into the cost by the contractors, creating more sales tax complexity. Bloomberg points out that the four states likely to be affected, Arizona, California, New Mexico, and Texas, have different rules for contractors’ sales taxes depending on whether they are paid for the work in a lump sum or with an itemized contract.

In Texas, for example, a contractor who provides an itemized list of materials is typically treated as a reseller and must collect sales tax, while Arizona treats a contractor as a reseller if the total billing is done as a lump sum.

Contractors large enough to be considered for a project of this scope are likely to be regional businesses, with locations in more than one state, so things could get more complicated still. Sales tax nexus in a state can be created by something as simple as a delivery across state lines. Manufacturers for the elements and suppliers of the raw materials both might find that their sales tax filings would become complicated if they were involved in the project.

If contractors pay the sales tax themselves and build it into their prices, as could be the case, this could turn into a very nice sales tax collection. We don’t have to look at this completely in the abstract, since there already is some fencing at the border in some areas.

The Government Accountability Office estimated the cost of construction for the current partial fencing at $2.8 million to $3.9 million per mile. The Corps of Engineers estimates the cost of the current fencing over 25 years at $16.4 million to $70 million, including upkeep, and the Congressional Research Service says that the actual total cost so far has been $7 billion.

The current fencing is, according to the Washington Post, only in the “easy parts,” and the cost of fencing in some areas could hit $16 million
per mile. The Post ended up with an estimate of $25 billion dollars for an actual wall, as opposed to a fence, all along the 1,000 or so miles
of border between the two nations.

Beyond the materials and even the labor, we can assume that every state would benefit from increased sales of food and other necessities for the crews working on the project. It’s just another example of how complicated sales tax can be.

No matter how complex your company’s sales tax needs may be, we can help. Give us a chance to impress you.

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