State law allows a contractor to deduct amounts paid to a subcontractor, provided the subcontractor has a business tax license or a contractor's license. A contractor must gather the license number of the subcontractor or maintain a copy of the subcontractor's license in its records, as well as the name, address and amount paid to each subcontractor. This is deducted on the business tax return on Schedule A, Lines 2 and 8. It is calculated by completing Schedule C and transferring the amounts onto Schedule B, Lines 8 and 9. Schedule C is available on the electronic return, as well as the paper version.
Subcontractors are also required to file their own business tax returns with the Department of Revenue.