A construction contract is any agreement, written or oral, pursuant to which tangible personal property is or is to be transferred and incorporated into real property, as defined in section 5701.02 of the Revised Code, so as to become a part thereof without regard to whether it is new construction or an addition to or alteration of an existing building or structure.
A construction contractor is any person who performs such an agreement, whether as prime contractor or subcontractor.

Special Circumstances
The sale and installation of the following items is never a construction contract and such transactions are to be treated as the sale and installation of tangible personal property for sales tax purposes:

• Carpeting, including carpet padding, tack strips, adhesive, and similar materials that are integral and necessary components of a carpet installation transaction
• Agricultural land tile as defined in division (B)(5)(a) of section 5739.01 of the Revised Code
• Portable grain bins as defined in division (B)(5)(b) of section 5739.01 of the Revised Code
• Trees, shrubs, sod, seed, fertilizer, mulch, and other tangible personal property transferred as part of a landscaping and lawn care service as defined in division (DD) of section 5739.01 of the Revised Code.

A construction contractor who purchases materials or taxable services for incorporation into real property is the consumer of those materials or services and needs to pay sales or use tax on their purchase price. The construction contractor is the consumer, even if a subcontractor provides the actual labor to incorporate those materials into the real property.

Contractors and their relationship with taxation

Contractors, like all other taxpayers, owe use tax on their untaxed purchases of tangible personal property used in Ohio. Contractors also owe use tax on untaxed purchases of certain taxable services provided to the contractor in Ohio. In addition, contractors have an added responsibility of paying tax on the purchases used to fulfill their real property contracts.

If a contractor is installing tangible personal property as part of a contract and that property remains tangible personal property after installation, then the contractor is not the consumer of the tangible personal property. In this situation, the contractor is selling tangible personal property and should charge sales tax unless the customer is an exempt entity or provides a fully-completed exemption certificate. The contractor may purchase the tangible personal property exempt from sales tax in this situation as a sale for resale.

Contractors and home remodelers do not collect sales tax on their work. But, they do pay sales tax on the supplies they purchase. Available on the Ohio Department of Taxation’s website is the form STEC CC, which is the construction contract exemption certificate. This certificate is to be presented to a vendor when making purchases that qualify as exempt. Some contractors find it’s easier to use a direct pay permit when buying taxable supplies. The direct pay permit allows them to buy the items without paying the tax at the time of purchase. All of that tax is gathered together and paid on a monthly basis. Direct pay permits are issued by a mutual written agreement between the applicant and the Ohio Department of Taxation.

Also, building and construction materials sold to a construction contractor for incorporation into real property outside this state are not subject to Ohio sales or use tax if the materials would be exempt from tax when sold to the contractor in the other state. The contractor’s exemption does not apply to tools, equipment, rentals of personal property, form lumber, temporary items such as fencing, lighting, etc., and any other purchases of tangible personal property or taxable services, not incorporated into real property.