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