AS THEIR BUDGETS SHRINK, STATES are looking for new ways to fill their coffers. For builders and developers, that may translate into an increased chance of an audit on their tax payments.

“With all the states being in deficit, they're actively pursuing this,” says Bryan Neuendorf, a state and local tax expert with Chicago-based national accounting firm Grant Thornton LLC. “Contractors are buying materials from throughout the world. The taxable event is based on where the delivery is, but that vendor may not have a collection responsibility in the state. You're responsible for picking that up and remitting the tax on the invoice.”

What often happens is that a trade contractor doesn't properly calculate sales tax on his invoice to the builder, Neuendorf says. As the general contractor, the builder ultimately bears responsibility. That means that if the correct amount of tax hasn't been paid, he can be hit with the cost of not only the extra that's due, but interest and penalties as well.

The accounts payable staff, estimators, and project manager should review invoices to ensure the tax has been paid, he says. If there are errors or missing information, send the invoices back to the trade contractors that submitted them. Builders also should review their trade contractor agreements to require trades to pay the appropriate taxes and provide the necessary documentation.

“Trying to get them to provide documentation [after the fact] is difficult,” he says. “If the invoice doesn't show taxes have been remitted, you'll have some issues.”