Persons that build houses or other structures on their own property from their own plans and that offer the structures for sale are not subject to business tax.
If, while constructing a house or other structure, a builder agrees to sell the property and alters the plans to the specifications of the buyer (e.g., extends a room, removes a wall, etc.), the builder will be considered a contractor and liable for business tax on the total receipts above the price that the property would otherwise be sold. A builder is subject to business tax in this manner if the builder:
- Contracts to sell a building and lot prior to completion of the construction of the building, and
- Alters the building plans to the specifications of the buyer.
For example, while constructing a home, a builder decides to sell the property and adds an additional bathroom to the main floor of the home at the request of the buyer. The builder sells the home for $360,000, and the value of the land is $60,000. The builder would owe business tax on the $300,000 structure.
Reference: Tenn. Comp. R. & Regs. 1320-04-05-.51.