How a Resale Certificate Helps Contractors Win More Bids
In competitive bidding, margins are tight. Winning a job often comes down to being a few percentage points lower than the next contractor. What if you could shave 6-10% off your materials cost without cutting quality or sacrificing margin?
For contractors operating in states that recognize separated contracts, a resale certificate can do exactly that. This guide shows you how tax savings on materials translate directly into more competitive bids, and more jobs won.
Construction Site
The Math That Changes Your Bidding
Here is the core concept: In most states, contractors pay sales tax when they buy materials from suppliers. That tax gets baked into the bid price. But in states that allow separated contracts, a contractor with a resale certificate buys materials tax-free and passes the tax through to the customer on the materials line item.
The result is not just a tax shift. It is a structural advantage in how you price your work.
A Side-by-Side Comparison
Consider a $200,000 commercial build-out where materials represent $100,000 of the total cost.
Contractor A (No resale certificate, lump-sum contract):
| Line Item | Amount |
|---|---|
| Materials (including 8% sales tax) | $108,000 |
| Labor | $70,000 |
| Overhead and profit | $22,000 |
| Total bid | $200,000 |
Contractor B (Resale certificate, separated contract):
| Line Item | Amount |
|---|---|
| Materials (tax-free purchase) | $100,000 |
| Labor | $70,000 |
| Overhead and profit | $22,000 |
| Subtotal | $192,000 |
| Sales tax on materials (paid by customer) | $8,000 |
| Total to customer | $200,000 |
Both contractors deliver the same work for the same total cost to the customer. But Contractor B has $8,000 in flexibility. They can:
- Lower their bid by $8,000 and win on price alone
- Keep their bid the same and pocket the $8,000 as additional profit
- Split the difference: lower the bid by $4,000 and keep $4,000
This is not a theoretical exercise. This is how contractors in Texas, Arizona, and other qualifying states gain a measurable edge in competitive bidding.
Real Dollar Savings by Project Size
The savings scale with your materials spend. Here is what the numbers look like across different project sizes, assuming a 7% average sales tax rate.
| Project Materials Cost | Tax Saved (7%) | Annual Savings (10 Jobs) |
|---|---|---|
| $25,000 | $1,750 | $17,500 |
| $50,000 | $3,500 | $35,000 |
| $100,000 | $7,000 | $70,000 |
| $250,000 | $17,500 | $175,000 |
| $500,000 | $35,000 | $350,000 |
For a mid-size contractor running $500,000 to $1 million in annual materials, the tax savings alone can fund an additional crew member, a new piece of equipment, or simply go straight to your bottom line.
Use our savings calculator to estimate the exact impact for your specific situation.
How to Factor Tax Savings Into Bid Pricing
Knowing the savings exist is one thing. Using them strategically in your bidding is another.
Strategy 1: Lower Your Bid Price
The most direct approach. If you save $7,000 in sales tax on a $100,000 materials job, you can lower your bid by some or all of that amount.
When to use this: Competitive bids where price is the deciding factor. Government contracts, commercial projects with multiple bidders, and any situation where you are competing against several other firms.
Strategy 2: Maintain Price, Increase Margin
Keep your bid the same as you would have quoted with tax included, but do not pay the tax. Your margin expands by the full amount of the tax savings.
When to use this: Negotiated contracts, repeat clients, or situations where you are the preferred contractor and price is less of a differentiator.
Strategy 3: The Hybrid Approach
Lower your bid enough to be competitive, but keep a portion of the savings as extra margin. This is what most experienced contractors do.
Example on a $100,000 materials job (7% tax rate):
- Tax savings available: $7,000
- Bid reduction: $4,000 (makes your bid more competitive)
- Additional margin retained: $3,000 (improves your profit)
- Net result: You win more bids AND make more per job
Which Contract Types Allow This?
Not every contract structure qualifies for tax-free materials purchasing. The key distinction is between lump-sum and separated contracts.
Separated (Itemized) Contracts: Tax Savings Apply
A separated contract breaks out materials and labor as distinct line items. In states that recognize this structure:
- Materials are listed at your charge price
- Sales tax is added to the materials line
- Labor is listed separately (usually not taxed)
- You purchase materials tax-free with your resale certificate
States that recognize separated contracts include: Texas, Arizona (for certain project types), Nebraska, Mississippi, and others. Always verify current rules with your state's tax authority.
Lump-Sum Contracts: Standard Tax Rules Apply
In a lump-sum contract, you quote one price for the entire job. In most states, you are the consumer of the materials and pay tax at the supplier. No resale certificate benefit applies.
Mixed Approach
Many contractors use both contract types depending on the client and project. Residential remodels might use lump-sum pricing for simplicity, while commercial projects use separated contracts to capture the tax advantage.
Get Your Resale Certificate --> Position yourself to take advantage of separated contract tax savings on your next bid.
How Competitors With Resale Certificates Are Underbidding You
If you are consistently losing bids by small margins, consider this possibility: your competitors may be using resale certificates and separated contracts to achieve a lower cost basis than you have.
A contractor who buys $100,000 in materials tax-free has $6,000 to $10,000 in pricing flexibility that you do not have if you are paying tax on the same materials. That is not a difference in skill, efficiency, or material quality. It is a structural tax advantage.
The Compounding Effect
The advantage gets larger over time:
- Per job: $6,000-$10,000 more flexibility on a $100K materials job
- Per year: $60,000-$100,000+ across ten similar jobs
- Reinvested: Those savings fund better equipment, more crews, and faster growth
- Reputation: Winning more bids means more completed projects and more referrals
If two contractors are equally skilled but one consistently bids 3-5% lower, the one with the tax advantage wins more work. Over years, that gap compounds into a significant competitive difference.
Setting Up Your Tax-Free Purchasing
Getting started is straightforward.
Step 1: Get Your Resale Certificate
Apply for a sales tax permit and resale certificate in your state. This is the legal document that authorizes you to make tax-exempt purchases for resale.
Step 2: Register With Your Suppliers
Provide your resale certificate to every material supplier you work with. Most suppliers have a standard process for this: you fill out their tax exemption form and attach your certificate.
Step 3: Structure Qualifying Contracts as Separated
For projects where separated contracts make sense, update your contract templates to itemize materials and labor separately. Consult with a construction attorney or CPA to ensure your contracts meet your state's requirements.
Step 4: Track Everything
Maintain clear records linking tax-exempt purchases to specific separated contracts. This protects you in the event of an audit and ensures you are only claiming the exemption on qualifying purchases.
Common Questions About Bidding and Tax Savings
"Will customers object to seeing sales tax on their invoice?"
In a separated contract, the customer sees materials, labor, and sales tax as distinct items. The total cost is often the same or lower than a lump-sum bid from a competitor who paid tax at the supply house. Most customers care about the bottom line, not the line-item breakdown.
"Does this work for residential projects?"
It depends on your state. Some states apply separated contract rules to all construction; others limit them to commercial work. Check your state's specific rules. Visit our state pages for details.
"What if I work in multiple states?"
You may need resale certificates in each state where you purchase materials. Multi-state contractors should review the rules in every state they operate in, as the treatment varies significantly.
"Can I use this for subcontracted work?"
Subcontractors have their own set of rules regarding resale certificates. The short answer is that it depends on whether the subcontractor is purchasing materials independently and reselling them to the general contractor. The contract structure matters. Read our subcontractor resale certificate guide for the full breakdown.
Key Takeaways
- A resale certificate can save 6-10% on materials costs in states that recognize separated contracts.
- On a $100,000 materials job, that is $6,000 to $10,000, enough to meaningfully change a competitive bid.
- Three bidding strategies exist: lower your price, increase your margin, or do both.
- Separated contracts are the key. Lump-sum contracts in most states do not qualify for tax-free material purchases.
- Your competitors may already be doing this. If you are losing bids by small margins, a structural tax disadvantage could be the reason.
Start Winning More Bids
Getting your resale certificate is the first step toward more competitive pricing and healthier margins. The application process is straightforward, and the payoff starts with your very next bid.
Get Your Resale Certificate -->
Questions about how to structure contracts for maximum tax savings? Contact our team for guidance specific to your state and business.
Related Articles
- Construction Materials Sales Tax: The Complete Guide - Comprehensive guide to how sales tax applies to construction materials, including state-by-state rules.
- Buying Construction Supplies Wholesale Tax-Free - How to set up tax-exempt accounts at supply houses to capture your savings.
- Free Construction Bidding Sites Directory - Find more projects to bid on with this directory of free bid platforms.