Do Subcontractors Need a Resale Certificate? Here's When and Why

If you are a subcontractor (an electrician, plumber, HVAC installer, framing crew, or any specialty trade working under a general contractor), you may be wondering whether a resale certificate applies to your business. The answer is not a simple yes or no. It depends on how you purchase materials, how your contract is structured, and which state you operate in.

This guide breaks down the rules so you know exactly when you can use a resale certificate, when you cannot, and how to handle it with your suppliers.

Construction Site

The GC-Sub Relationship and Tax Obligations

To understand how sales tax works for subcontractors, you first need to understand the tax relationship between general contractors (GCs) and subcontractors.

How the Chain Typically Works

1. Property owner hires a general contractor
2. General contractor hires subcontractors for specific trades
3. Subcontractors purchase materials and perform their portion of the work
4. Materials get installed into real property

The critical tax question is: Who is the consumer of the materials?

In most states, the answer is whoever installs the materials into real property. That means if you are a subcontractor who buys electrical wire, PVC pipe, or ductwork and installs it into a building, you are typically the end consumer for sales tax purposes, regardless of whether the GC or the property owner ultimately pays for the project.

The Default Rule for Subcontractors

In the majority of states, subcontractors follow the same rule as general contractors:

If you purchase materials and install them into real property, you are the consumer. You pay sales tax when you buy the materials, and you do not separately charge sales tax to the GC.

Your invoice to the GC is for the total cost of your work, labor plus materials, with no separate sales tax line item. The tax you paid at the supply house is embedded in your price.

When Subcontractors CAN Use a Resale Certificate

Despite the general rule, there are legitimate scenarios where a subcontractor can use a resale certificate to buy materials tax-free.

Scenario 1: Materials Purchased and Resold to the GC (Not Installed by You)

If you purchase materials and transfer them to the general contractor without installing them, that can be a resale transaction. The GC (or another party) installs the materials into the project.

Example: A plumbing supplier subcontractor purchases fixtures and delivers them to the job site. The GC's crew installs them. The subcontractor is reselling the fixtures, not consuming them.

In this case, a resale certificate is appropriate for the purchase. You buy tax-free and charge the GC for the materials. The GC then owes use tax or sales tax depending on the state and contract structure.

Scenario 2: Separated Contracts in Qualifying States

In states like Texas that recognize separated contracts, subcontractors may be able to structure their agreements with the GC the same way a GC structures agreements with a property owner. If materials and labor are separately stated and the tax is charged on the materials portion, the subcontractor can purchase those materials tax-free.

This requires:

• A written contract with materials and labor itemized separately
• Sales tax charged on the materials line item
• The state must recognize this treatment for subcontractor agreements

Scenario 3: Retail Sales Outside of Contract Work

If your business also sells materials at retail (for example, an electrical subcontractor who also operates a supply counter selling switches, outlets, and wire to other contractors or homeowners), those retail sales are standard resale transactions. You buy that inventory tax-free with your resale certificate and collect sales tax from the retail buyer.

Scenario 4: Items That Remain Personal Property

Certain installed items may not become part of real property under your state's definition. Freestanding appliances, removable equipment, and items that can be detached without damaging the structure may qualify for resale treatment.

Get Your Resale Certificate --> Even if most of your work follows the consumer model, having a certificate ensures you capture every legitimate tax-free purchase.

When Subcontractors CANNOT Use a Resale Certificate

The following situations do not qualify for resale certificate use, regardless of your state:

Materials You Install Into Real Property (Most States)

If you buy copper pipe and solder it into a building's plumbing system, that pipe is now part of real property. You consumed it. A resale certificate does not apply in the majority of states for this transaction.

Tools, Equipment, and Supplies

Nothing you use to perform your work qualifies for a resale certificate:

Materials for Your Own Facility

Materials used to build out or improve your own shop, office, or warehouse are not for resale. You are the end consumer.

State-by-State Differences for Subcontractors

Sales tax treatment for subcontractors varies significantly from state to state. Here are the key differences in major states.

Texas

Texas is one of the most favorable states for contractors and subcontractors who want to use resale certificates. Under a separated contract, a subcontractor can purchase materials tax-free and charge the GC sales tax on the materials portion. The contract must clearly itemize materials and labor as separate line items.

If the subcontractor uses a lump-sum contract, the standard consumer rule applies: pay tax at the supply house and do not charge tax to the GC.

California

California generally treats all contractors and subcontractors as consumers of materials they install. The separated contract distinction that works in Texas does not apply in California. Subcontractors pay sales tax on materials at the time of purchase, and their invoices to the GC do not include a separate sales tax charge.

Limited exceptions exist for retailers who also perform installation (such as an appliance retailer who delivers and hooks up a dishwasher).

Florida

Florida follows the consumer model for subcontractors working on real property improvements. Materials purchased for installation into real property are taxable at the point of purchase. The subcontractor is the end consumer.

New York

New York has nuanced rules that depend on whether the work qualifies as a capital improvement or a repair. Capital improvements follow the consumer model, meaning the subcontractor pays tax on materials. Repairs to real property may be treated differently, with the contractor acting as a vendor who collects tax from the customer.

Subcontractors in New York need to understand this capital improvement vs. repair distinction, as it directly affects whether they should pay tax at purchase or collect it from the GC.

Arizona

Arizona applies a transaction privilege tax (TPT) that works differently from traditional sales tax states. Prime contractors may be subject to TPT on the gross income from contracting. Subcontractors may be able to deduct amounts paid to them by the prime contractor, but the rules are specific and depend on the type of project and the parties' tax registrations.

How to Present a Resale Certificate to Suppliers as a Subcontractor

Suppliers see contractors and subcontractors walk in every day. Some suppliers are well-versed in the rules; others are not. Here is how to handle the process smoothly.

Step 1: Know Your State's Rules First

Before presenting a resale certificate to a supplier, make sure you actually qualify to use it for the specific purchase. If you are buying materials for a lump-sum contract in a consumer-treatment state, using a resale certificate is improper, and the liability falls on you if you are audited.

Step 2: Provide the Certificate in Advance

Do not wait until checkout to produce your certificate. Set up a tax-exempt account with each supplier before you start purchasing. This typically involves:

• Completing the supplier's tax exemption form
• Providing a copy of your resale certificate
• Specifying your business type (subcontractor)
• Indicating which purchases will be exempt

Step 3: Be Specific About Which Purchases Are Exempt

Not every purchase on your account should be tax-free. Materials for qualifying separated contracts or resale are exempt. Tools, equipment, and supplies for your own use are not. Work with the supplier to flag your account correctly, or separate your purchases into exempt and taxable transactions.

Step 4: Keep Your Documentation Current

Resale certificates expire or need renewal depending on your state. Keep your certificate current with every supplier. If a supplier questions your exemption, be prepared to show:

• Your valid resale certificate
• Your sales tax permit number
• The contract or purchase order supporting the exempt purchase

What If a Supplier Refuses Your Certificate?

Suppliers have the right to refuse a resale certificate if they believe the purchase does not qualify. If this happens:

• Ask to speak with their tax compliance or accounts receivable department
• Provide documentation of the qualifying contract
• If necessary, pay the tax and file for a refund with your state tax authority

Common Mistakes Subcontractors Make

Mistake 1: Assuming the GC's Certificate Covers You

A general contractor's resale certificate covers the GC's purchases, not yours. As a subcontractor, you need your own certificate if you want to make tax-exempt purchases.

Mistake 2: Using a Certificate for All Material Purchases

Having a resale certificate does not make every purchase tax-free. Only purchases that genuinely qualify (resale, separated contracts in qualifying states, items remaining as personal property) are exempt.

Mistake 3: Not Tracking Job-by-Job Materials

If you use a resale certificate on some jobs (separated contracts) but not others (lump-sum), you need clean records showing which materials went to which job. Auditors will look at this.

Mistake 4: Ignoring Multi-State Rules

If you work across state lines, the rules change with every border you cross. A separated contract that works in Texas does not work the same way in California. You may need certificates in multiple states, and you need to understand each state's treatment. Our guide to understanding sales tax nexus covers when multi-state obligations apply.

Key Takeaways

1. Subcontractors follow the same general rule as GCs. In most states, you are the consumer of materials you install into real property.
2. Resale certificates work for subcontractors when you resell materials without installing them, use separated contracts in qualifying states, or sell materials at retail.
3. State rules vary dramatically. Texas allows separated contract treatment; California does not. Always verify the rules in every state where you work.
4. You need your own certificate. The GC's certificate does not cover your purchases.
5. Proper documentation is critical. Track which purchases are exempt, which jobs they correspond to, and keep your certificates current with all suppliers.

Get Set Up With Your Resale Certificate

Whether you are a subcontractor looking to capture tax savings on separated contracts or you need a certificate for retail material sales, the application process is straightforward.

Get Your Resale Certificate -->

Not sure whether your subcontracting arrangement qualifies for tax-free purchasing? Contact our team for guidance specific to your state and trade.

Related Articles

• Construction Materials Sales Tax: The Complete Guide - The full breakdown of how sales tax works for construction materials, including contract types and state rules.
• Plumbing and HVAC Contractors: Resale Certificate Guide - Trade-specific guidance for plumbing and HVAC subs on materials and tax savings.
• How a Resale Certificate Helps Contractors Win More Bids - Use your tax savings to submit more competitive bids and win more work.