Owner-Builders and Speculative Builders Examples
An investor buys a commercial lot an hires a contractor to build a shopping
center on it. He enters into a contract to sell the shopping center 23
months after completion of construction and closes on the sale two
months later. He owes tax based on the full sales price less a credit
for tax paid by the contractor and the lot developer.
The above investor does not contract to sell the property until the 25th
month after completion. He does not owe any speculative builder tax.
A homeowner buys a lot and hires various contractors to build a home on it.
He does not issue any exemption certificates to anyone. He moves into
the house and lives in it for 7 months after completion. He then
advertises the house for sale and sells it. He does not owe any
speculative builder tax.
A developer buys a piece of land and subdivides it into ten lots. He
has streets and utilities constructed to the lot lines. He sells five
lots to a construction company who provides him with an exemption
certificate. He sells one lot per year for five years to individuals
to build homes. The first five lots are exempt. The construction
company will pay tax on these later. The remaining five lots are
taxable regardless of how long after construction they are sold.
An owner hires a contractor to build a building. The contractor does
not charge tax on his invoices. The owner sells the property within 24
months and computes the tax on the sale. The owner would not be able
to claim credit for tax paid by the contractor until he could provide
evidence that the tax had been paid.
For additional information, see the Model City Tax Code Guideline TG 2001-01
at
www.modelcitytaxcode.org/forms/speculative_builder.htm