AIA billing has remained a construction industry standard for over a century. They bring a reliable, organized, and standardized system, providing clear directions for contractors.
However, as any contractor using this method knows, it requires detailed documentation, attention to detail, and time-consuming paperwork to complete all the requirements. Especially when it comes to getting taxes right.
To complicate things even more, there is no one-size-fits-all solution. This is because laws and requirements will change from state to state. For example, in some states, sales tax must be collected on all sales, while in other states, sales tax is only required on certain types of transactions. Laws and regulations regarding retention and retainage will also vary from state to state.
Despite these varying requirements, it’s a job you must do correctly; otherwise, careless mistakes could take a bite out of your bottom line–or worse, draw the ire of the IRS.
The good news is that there’re ways to greatly simplify this process. In this article, we’ll give you an overview of how to get things done the right way to save time and remain in compliance. And with the help of tools like Knowify, the entire process can become an efficient and straightforward experience.
How Knowify creates AIA billing invoices with sales tax
Knowify helps contractors generate AIA billing invoices with sales tax included in many different ways. Through our suite of tools, contractors can quickly create AIA billing forms, including change order consolidations, reconciliations, and more. All with billing data in one central location.
Additionally, Knowify seamlessly integrates with QuickBooks allowing contractors to add new tax rates or sync existing rates that will be automatically sent to your Knowify account. If you don’t use QuickBooks, you still only need to make a few easy clicks. All you have to do is enter the description and percentage, then click save.
Upon completion, you can use this tax rate from then on. From there, these rates can be used to build out a payment application in minutes. Once the application is complete, it can be emailed to your general contractor through Knowify.
Contractors no longer have to spend hours manually calculating sales tax rates for each job. Instead, Knowify bears this burden for you. Our tools allow contractors to send customers professionally crafted invoices, including the appropriate amount for tax.
How to modify AIA forms to add sales tax
There will be times when you need to make modifications to either add, delete, or alter sales tax on an amount due. If using construction management software, this problem will be quickly resolved by creating a new AIA billing form with the corrected information included.
Contractors are permitted to make as many changes as they want. However, all changes must be clearly documented and easily accessible for anyone who wishes to view the changes. The AIA also permits entire provisions to be deleted, including new provisions with accompanying documents. Again, all changes must be recorded and viewable in some way. This is not a suggestion but a requirement. Failure to document changes can result in some serious legal trouble. Document everything.
Before making modifications, it’s crucial to determine which AIA form is needed. This will either be the G702 form or the G703 continuation sheet. Both forms are likely needed, but you may only need one.
To ensure accuracy, contractors must determine the sales tax laws required by the state where the job is being performed. An excellent place to go for this is your local contractor association or State website.
After making the necessary changes, it’s vital to double-check your numbers to ensure they are accurate and compliant with state laws. If you have to, go through each line item two, three, or even four times to ensure the correct amounts are listed. Mistakes here could result in potential legal issues down the line. If there is any doubt about the changes made, processes used, or anything else, the AIA recommends that contractors immediately consult a lawyer before submitting an altered document.
AIA billing sales tax best practices
AIA billing best practices:
- File on time
- Consult a tax professional before filling
- Thoroughly read and understand your contract
- Understand the workings of a fixed-price contract
- Try to eliminate manual tracking to avoid mistakes
- Utilize software designed for the construction industry
- Properly document and organize all relevant information
- Understand your state’s specific sales tax laws and filing requirements
Our first best practice is understanding your state’s specific sales tax laws and filing requirements. You must know the ins-and-outs of what is taxable, what is exempt, and what the actual filing frequency is before you even begin the process.
From here, establish an organized tracking system so you can collect and remit sales tax. Don’t cut any corners here. Properly document all transactions, including credits, refunds, discounts, etc. In short, ensure you know how much is due to the IRS every time you issue an invoice; this will make tax filing much easier and provide a handy record should you need it.
With all these documents in hand, double-check your paperwork before you file. It’s better to be safe than sorry, so take the extra time to ensure all your paperwork is straight before hitting submit. Just as important, be absolutely sure that you file on time. Be punctual, or you run the risk of late fees and other costly penalties. For this reason, consult a tax professional before filing. If you’re ever uncertain or confused about your tax responsibilities, it’s always best to bring in a pro.
Our next best practice concerns the actual contract you’re working under. AIA progress billing is reserved for fixed-priced contracts and lump-sum contracts. So if you’re working under one of these contracts, take the time to understand their inner workings and how they influence payments, taxes, and invoicing. Additionally, pay special attention to the schedule of values (SOV), as the SOV serves as the basis for reviewing payment applications and certificates for payments.
Finally, software built specifically for the construction industry, such as Knowify, will help contractors track, organize, document, and change invoices to ensure that sales tax is included and accurate. Construction accounting software will eliminate manual tracking, meaning mistakes are avoided, and data is easily accessible.
Whether you’re just getting started or are looking for ways to improve your current system, sign up for a demo with Knowify today to see how we can help!
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