Q&A with the Pennsylvania Department of Revenue
If parent company purchases raw material and gives to subcontractor to fabricate only, is the subcontractor labor subject to use tax when finished product is utilized in construction activities? Parent company maintains title to raw material.
If the parent company is responsible for and is charging its customer for the sale and installation of the fabricated property in a manner that the property becomes a permanent part of the real estate, then the parent company is considered a construction contractor. As a construction contractor, the parent company is required to pay sales or use tax on its cost of the property installed. In this case, the contractor’s cost includes both the cost of the raw materials purchased and the subsidiary’s charge for fabricating the raw materials.