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

by Richard C. Litwin, Esq. , Litwin Law

Nonresident contractors and subcontractors planning to enter into and perform construction contracts in Georgia face filing requirements that must be fulfilled before starting the Georgia project. The Nonresident Contractors Act, part of the Georgia Revenue Code and clarified by Georgia Department of Revenue regulations, imposes the filing requirements.

Who/what is a construction contractor in Georgia? 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 and that performs services and/or furnishes 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. Thus, a nonresident business that provides materials and services for improving real estate is a construction contractor under the Georgia definition.

Who/what is a nonresident contractor? A nonresident contractor is a contractor that has no bona fide place of business in Georgia. 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 discussed below.

Registering as a New Business with the Georgia 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/subcontractor registers, then the Georgia Department of Revenue will issue a sales/use tax certificate of registration that bears a unique sales tax number assigned to the contractor/subcontractor.

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

Other Department of Revenue Registration Requirements. After the nonresident contractor/subcontractor gets a sales tax registration number and registers as a foreign business with the Georgia Secretary of State, the entity must comply with other requirements. 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 21411, if the business is an LLC. All forms can be obtained at the Georgia Department of Revenue’s website. As noted above, the nonresident contractor/subcontractor must complete one set of forms for each contract/project. After completing each set of forms (one set for each project), the nonresident contractor/subcontractor must log on to the Georgia Tax Center portal (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 the property owner in a nonresident contractor/subcontractor’s action for payment. 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/ subcontractor from maintaining an action or defending itself in an action filed against the nonresident contractor/subcontractor. To be clear, the nonresident contractor/ subcontractor can file (commence) a lawsuit in Georgia, but the contractor/ subcontractor cannot continue (maintain) the action without authority to transact business. If the nonresident contractor/ subcontractor files a legal action (lawsuit) without having registered with the Georgia Secretary of State as a foreign business, then the nonresident contractor/ subcontractor can cure the default by registering with the Secretary of State as a foreign entity authorized to transact business in Georgia. The contractor/ subcontractor 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 contractor performance tax bond that must be obtained by the nonresident contractor/ subcontractor. The Georgia Department of Revenue requires that the nonresident contractor/subcontractor 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 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. The prime or general contractor or property owner may be required to withhold 2% on payments to the nonresident contractor/subcontractor if the total of all subcontracts on a job is greater than or equal to $250,000. The withholding ensures that the nonresident contractor/subcontractor complies with Georgia sales and use tax obligations. In lieu of having 2% of its pay withheld by the prime contractor, a nonresident 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 Georgia Project. Upon completing the project, the nonresident contractor/ subcontractor can apply for release of the bond. The contractor/subcontractor must print (from the Georgia Department of Revenue Website) Form ST-C 214-14, Nonresident Bond Cancellation Request Form. The contractor/subcontractor 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 Georgia Department of Labor) are paid in full. Getting release confirmation from the Georgia Department of Labor can take time. Form ST-C 214-14 includes the Georgia Department of Labor contact information and telephone number. The nonresident contractor/subcontractor may need to visit a Georgia Department of Labor office 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/Use Tax Obligations. Nonresident contractors/subcontractors must also comply with all Georgia sales/ use tax laws on materials purchased outside Georgia and brought into Georgia. Specifically, a nonresident contractor/ subcontractor may have to pay additional second-level sales/use tax on materials that the nonresident contractor/ subcontractor buys outside Georgia and uses to fulfill a contract in Georgia. For instance, a South Carolina contractor may buy materials in South Carolina, pay the South Carolina sales/use tax, and then bring the materials into Georgia to use on a Georgia construction project. In this case, the contractor may have to pay any additional use tax, less credit for taxes paid to South Carolina. In the example, the hypothetical contractor is based in Aiken County, South Carolina. The contractor pays 6% South Carolina state sales/use tax and 2% county sales/ use tax on the purchase of the materials that the Aiken County contractor buys and takes delivery of in Aiken County, South Carolina. Upon bringing the materials into Georgia, the contractor owes a secondlevel Georgia use tax. The tax 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%. In paying the second-level Georgia use tax, the Aiken County contractor gets credit for taxes already paid (in Aiken County). Specifically, the contractor can take a credit for the 6% South Carolina state tax (applied against the 4% Georgia tax) and 2% (applied against 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 can apply the other 2% of South Carolina state sales/use tax to the City of Atlanta local taxes, to reduce the second-level tax to 1.05%.

Conclusion. A nonresident construction contractor/subcontractor must understand all obligations before starting a Georgia construction project. Although beyond the scope of this article, but indicated above, the nonresident contractor/subcontractor 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 nonresident contractor/ subcontractor that violates 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 taxpayer, so the nonresident contractor/subcontractor should consult a state tax attorney about the best course of action.

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.

About the Author

Richard C. Litwin, Esq. - Based in Atlanta, Richard C. Litwin (Litwin Law) has a national tax practice, where he counsels on state and local tax issues and represents businesses in state and local tax disputes, including sales and use tax and multistate corporate income tax. Mr. Litwin is a Fellow of the American College of Tax Counsel and is listed in U.S. News and World Report’s “The Best Lawyers in America,” for Litigation and Controversy – Tax. For further information, visit www.litwinlaw.net and read Litwin Law’s legal blog: Pass the SALT.