Nonresident Construction Contractors in Georgia: Avoiding Sales/Use Tax Mishaps

In Georgia, nonresident contractors and subcontractors must adhere to filing requirements before starting any work on a project.  The Nonresident Contractors Act, part of the Georgia Revenue Code, and clarified by Georgia Department of Revenue regulations impose the requirements.  In this issue of “Pass the Salt,” we examine the nonresident contractor/subcontractor filing obligations.

What is a construction contractor?   A construction contractor is a person who or business that engages in construction projects relating to the premises or property that is the subject of the contract, by performing services and/or furnishing materials for constructing, altering, repairing, improving, dismantling or demolishing buildings, roads, bridges, viaducts, sewers, water and gas mains, streets, disposal plants, water filters, tanks and towers, airports, dams, water wells, pipelines and every other type of structure, project, development or improvement that meets the definition of real property.  A nonresident business that provides materials and services for improving real estate is a construction contractor.

What is a nonresident contractor?   A nonresident contractor is a contractor that has no bona fide place of business in Georgia.  Thus, a contractor that does not maintain a permanent domicile or business facility in Georgia is a nonresident contractor that must comply with the Nonresident Contractors Act.  The specific requirements are set out below.

Registration as a New Business with Department of Revenue.  A nonresident contractor/subcontractor must register as a new business with the Georgia Department of Revenue’s Taxpayer Services Division.  The nonresident contractor/subcontractor can register at the Georgia Tax Center, which is the online portal for Georgia Department of Revenue.  After the contractor registers online, the Georgia Department of Revenue will issue a sales/use tax certificate of registration that bears a unique sales tax number assigned to the business.

Registration with the Georgia Secretary of State.  The nonresident contractor/subcontractor should obtain a certificate of authority to transact business in Georgia as a foreign entity.  The nonresident contractor/subcontractor can also do this online at the Georgia Secretary of State’s registration portal.

Other Department of Revenue Registration Requirements.  After the contractor gets its sales tax number and registers as a foreign business with the Secretary of State, and for each contract performed (or project) in Georgia that is equal to or exceeds $10,000.00, the nonresident contractor/subcontractor must complete the following:   (1) Georgia Department of Revenue Form ST-C 214-1, Nonresident Contractor’s Application for Authorization to Perform Contract, (2) Form ST-C 214-4, Nonresident Contractor Performance Tax Bond (with a bond, which is discussed below), and (3) Nonresident Contractor’s Consent to Service of Process.  For this last form, the contractor/subcontractor completes the form based on the entity type.  The business must use Form ST-C 214-8, if the business is a corporation, must use Form ST-C 214-9, if the business is a sole proprietorship, must use Form ST-C-214-10, if the business is a partnership, and must use Form ST-C 214-11, if the business is an LLC.  All forms can be obtained at the Georgia Department of Revenue’s Web site.  The contractor/subcontractor must complete one set of forms for each contract/project.  Then, after completing each set of forms (one set for each project), the nonresident contractor/subcontractor must log on to the Georgia Tax Center using the sales tax log on user name and password.  The nonresident contractor/subcontractor must submit the completed/signed forms by uploading each set of completed/signed forms at the Georgia Tax Center portal.

Consequences of Failing to Register.  A nonresident contractor/subcontractor that fails to register with the Georgia Department of Revenue has no access to Georgia courts, even if the nonresident contractor obtained a certificate of authority to transact business issued by the Georgia Secretary of State.  Indeed, failure to comply with Nonresident Contractors Act is an affirmative defense that can be asserted by property owner in a nonresident subcontractor’s action for payment.  But the nonresident contractor/subcontractor can cure this default, so that it can proceed in a legal action (or lawsuit) — late registration and payment of all taxes and revenues owed to the Department of Revenue is substantial compliance and removes the bar to maintaining an action based on contract.  Also, failing to register as a foreign business with the Georgia Secretary of State can bar the nonresident contractor from maintaining an action or defend an action.  To be clear, the nonresident contractor can file (commence) a lawsuit in Georgia, but the contractor cannot continue (maintain) the action without authority to transact business.  If the nonresident contractor/subcontractor has filed an action (lawsuit) without having registered with the Secretary of State as a foreign business, then the contractor can cure the default by registering with the Secretary of State as a foreign entity authorized to transact business in Georgia.  The contractor can register after filing suit but should register before the opposing party files a motion to dismiss.

Bond Requirement.  As noted above, Form ST-C 214-4 is a performance tax bond.  The Georgia Department of Revenue requires that the contractor obtain a separate bond for each project equal to or exceeding $10,000.00 and before starting the project.  The bond must be issued by a surety company that is authorized to do business in Georgia.  The Department of Revenue may require a master or blanket bond when the nonresident contractor/subcontractor is engaged in continuing service under several contracts or is performing services on a contingent or unit basis (and the contract price is not determinable until after performance).  The bond must be an amount no less than $10,000 with respect to all contracts performed during the current calendar year.  Further, by March 1 of each year, the nonresident contractor/subcontractor must report and register all contracts of $10,000 or more completed during the prior calendar year and must pay a fee of $10.00 for each contract.  Nonresident subcontractors are subject to a 2% withholding on payments, if the total of all subcontracts on a job is greater than or equal to $250,000.  The law ensures that the subcontractor complies with Georgia sales and use tax obligations.  In lieu of having 2% of its pay withheld by the prime contractor, the subcontractor can post a surety bond.  The nonresident subcontractor must complete and file with the Department Form ST-C 214-2, Application for Non-Resident Subcontractor’s Sales and Use Tax Bond.  The surety company must complete and sign Form ST-C-214-3, Nonresident Subcontractors Sales and Use Tax Bond.

After Contractor Completes a Project.  Upon completing the project, the nonresident contractor/subcontractor can apply for release of the bond.  The contractor must print (from the Georgia Department of Revenue Web site) Form ST-C 214-14, Nonresident Bond Cancellation Request Form.  The contractor must complete the form, sign the form in front of a notary public and upload the completed/signed form at the Georgia Tax Center.  The nonresident contractor/subcontractor should include written notice from the Georgia Commissioner of Labor that confirms that all fees related to the contract (e.g., unemployment insurance taxes owed to Department of Labor) are paid in full.  Getting release confirmation from the Department of Labor can take time.  Form ST-C 214-14 includes Department of Labor contact information and telephone number.  The nonresident contractor/subcontractor may need to travel to the Department of Labor offices and meet in-person with an adjudication supervisor.  The Adjudication Section is in the Georgia Department of Labor’s administrative offices, located at 148 Andrew Young International Blvd., Atlanta, Georgia 30303.  The Georgia Department of Revenue will not release the bond until the nonresident contractor gets the clearance from the Georgia Department of Labor.

Other Sales Tax Obligations.  Nonresident contractors/subcontractors must also comply with all Georgia sales/use tax laws on materials purchased outside Georgia and brought into Georgia.  This includes paying any additional (second-level) sales/use tax on product that the contractor buys outside Georgia and uses to fulfill a contract in Georgia.  Thus, where a South Carolina contractor purchases materials in South Carolina, pays the South Carolina tax, and brings the materials into Georgia to use for a construction contract, then the contractor may be required to pay any additional use tax.  The Georgia Department of Revenue offers credit for like taxes.  For example, a nonresident contractor based in Aiken County, South Carolina pays 6% South Carolina state tax and 2% county tax on its materials purchases that are delivered in Aiken County, South Carolina.  Upon bringing the materials into Georgia, the contractor owes a use tax that is based upon the county into which the contractor brings the materials.  If the contractor brings the materials into the City of Atlanta, then, as of August 2022, the contractor must accrue and pay an additional City of Atlanta local tax of 3.05%.  The Aiken County contractor gets credit for the 6% South Carolina state tax (applied against the 4% Georgia tax).  But the contractor does not get credit toward the 3.05% City of Atlanta local tax.  The Georgia law that offers the credit for sales tax paid to another state requires “like” taxes.  Thus, as to the 6% state tax, the Aiken contractor can only apply 4% to the Georgia state tax of 4%.  The contractor cannot apply the other 2% of South Carolina state sales/use tax to the City of Atlanta local taxes (which, here total 3.05%).

Conclusion.  A nonresident construction contractor/subcontractor must understand all obligations that must be completed before starting a Georgia construction project.  Although beyond the scope of this article, but indicated above, the nonresident contractor must also file monthly sales tax returns and remit any sales taxes to the Georgia Department of Revenue.  Failing to file the forms and file and pay any sales taxes can lead to a host of unintended consequences.  A construction contractor that has not complied with Georgia sales and use tax laws, including filing obligations, can take steps to minimize its liability by coming forward through a voluntary disclosure to the Georgia Department of Revenue to limit exposure and penalties (criminal and civil).  This option is not available to every construction contractor, so the contractor should consult a state tax attorney about the best course of action.

The Litwin Law Firm, P.C., d/b/a Litwin Law, represents individuals in state and local tax matters.  Litwin Law deals with a variety of issues that arise during audit and during protest and appeal to the Georgia Tax Tribunal.  If you or your client faces a construction contractors sales tax issue or other audit issue, and you are unable to resolve the issue, Litwin Law can help.   

For over 30 years and as a recognized Super Lawyer, Richard Litwin has devoted his practice to multistate tax, state and local tax, and tax controversies. He has chaired the State Bar of Georgia’s Section of Taxation and highly active on Georgia Department of Revenue committees.

Note:  This document is an overview and summary of state and local tax obligations.  This document is not intended to be, nor should be interpreted as, legal advice.  For legal advice, the reader should contact an attorney.