Lump Sum Contract Example: Fill & Download for Free

Dude. Go hire a financial advisor instead of asking randos on Quora.This is a lot of money. A good financial advisor will tell you what your full set of options are. For example, there are tons of firms out there (predominantly insurance companies) who would love to buy you out of this long dated annuity contract (They do this a lot with lottery winners who take the annuity options as opposed to the lump sum option.) Depending on their exact discount rate, you could get a massive one time lump sum right up front.Illustratively, let’s say you price this cash flow at 5% discount rate, expected life of 30 years: that’s $5.6 million pre-tax dollars upfront. The student loan becomes de minimis in comparison. If you assume 60 years total, the lump sum goes to $6.9mm.This is a life changing amount of money. Wouldn’t that drastically change your menu of options? As opposed to being dependent on a weekly cash flow? I know my personal investment, career, and consumption patterns would all change pretty significantly. Your advisor would also have interesting options for protecting yourself against taxation issues. You can put this into a tax free IRA or trust fund for your kids, etc.

A lump sum contract the amount is fixed for the contracted service. In other words the payment invoked is fixed that is required to be paid one the contracted commitment is discharged.In the case of item rate contract the rate for each component of the contract is fixed on a unit base. For example rate for every square meter of plastering or rate for concreting per every cubic meter. And the amount payable is calculated based on the quantity multiplied by the respective contract rate.an easy way to distinguish these is or demolition of an old house there could a one lump sumamount agreed and it is paid on completion of the demolition. On the other hand while building a house there there could be itemised contract with rates fixed for each item of the works required to build the house.

The answer is probably yes, but it depends on how this all went down. So, let me just explain how this should work under the law.You authorize your contractor to buy parts on your behalf. The State of XYZ requires that they charge sales tax on parts and labor. When they go to Lowe’s or Home Depot, or wherever, they need to present a Sales and Use Tax Resale Certificate which will exempt them from paying sales tax at the point of sale for certain parts that will become part of your project.This does not include small tools, like drills, drill bits, sanders, sandpaper, etc.Those are not COGS (cost of goods sold) materials; they are small tools.They can’t legally claim an exemption from having to pay sales tax on these items, even if you are a nonprofit (the ultimate example).They should not be charging you for these items, anyway. They are not parts. — They can come up with some way to charge you for the portion of their useful lives that they used, for your job, and the sales tax will just be part of the overall amount.If the drill cost $100, and then $108.25 after-tax, then if they say you used up 30% of the useful life of the drill, then you might owe them 30% of $108.25. — That would show up as a separate line item. It would not be aggregated with all of your materials and then, at the end, added all up and 8.25% (or whatever sales tax rate is applicable to you) tacked on to that aggregate amount.If you saw that the person was asking for 8.25% of (30% of $108.25) — this would be illegal.In my experience, Lowe’s (in this instance) — their customer service personnel — act like you’ve spent too much time in the spraypaint or glue aisle when you ask, as the contractor, to be exempt from paying sales taxes. — They don’t tend to accept the Sales Tax Resale Certificates each time; they just get you set up, and then you type in a PIN each time, and it works, if you can get it set up right. However, they will then processs everything you buy as a sales-tax-exempt item, like a drill. At which point you would need to say, “No, charge sales tax on the drill” — and, then, they look like they’ve been in the glue section too long.If you can’t then you, as the contractor, have to pay sales tax on the materials. Even if those materials should be tax-exempt as they are being resold to you (the end customer).If this occurs, then the contractor should charge you the pre-tax amount and assess sales tax on the item to you. When he (or she) remits his sales tax dues for the month to the State Comptroller, then he will, on paper, remit your money, and then subtract off the money he’s already paid to the vendor, which is a wash. — He will, in effect, send $0.00 for that item.If he got stuck not paying sales tax on a drill, or some other small tool — which he was supposed to pay tax on, at the point of sale — then, he should charge to you pre-tax as before based on how much of the useful life of the item you used — and, then, he should remit additional sales tax to the state for what he should’ve paid at the point of sale. — For instance, if he only paid $100, but he should’ve paid $108.25, then he should add $8.25 to his sales tax remittance for that month.This is in no way the absolutely correct way of dealing with this. He probably should set up two accounts, one of which is set for sales tax and one of which is set not to charge sales tax, and then have two buggies for two transactions: one for your materials and the other for his small tools and other taxable items, like the soda he bought from the cooler next to the checkout line.That’s how you do that. — Pain in the butt!—In my experience, people at the company don’t do it right. They leave it to the accounting department to fix the issues, which are fixed, tediously, with the hope that my best will be good enough for regulators.None of that should affect your bill, though! Not if the accounting department records it correctly. — Again, though, I prefer lump-sum contracts; with those, you can avoid all of this mess. If I quote you $150,000, then you will owe $150,000 regardless of how I do my taxes.If I have to buy a new drill, you won’t know it. If I don’t, you won’t know it. — If I have to buy a pallet of drills for your job because I made a mistake, you won’t know it.In a lump-sum contract, where you can have additions and deletions at the bottom that alter the price, you — the customer — know what you will owe upfront. — It’s a contract. That’s why you pay a down payment.I once had to withhold my slack-jawed gaze from a banker who didn’t understand why we’d ask for a down payment (i.e., a payment before doing any work). The obvious answer was that the down payment made the bid contractually enforceable and locked in the price extended to the customer. — Actually, I’m not sure what my jaw looked like then. I’ve been told several times before my facial expressions betray my true feelings.The types of contractors you’ve named in your question tend to use cost-plus invoices rather than lump-sum invoices.—As an example, the electrician says:Materials $3,000Labor $3,000Overhead and Profit Cost-Plus Markup: 1.3Sales Tax Rate: 8.25%TOTAL $6,000 * 1.3 * 1.0825 = $8,443.50—If that was an accurate invoice, then you’ve agreed to reimburse him for his materials and labor. He wants 20% for overhead and 10% for profit margin, so that’s how you get 1.3 (=100% + 30%); expressing it that way is just a convenient arithmetic trick for calculating stuff. Likewise, the State of XYZ law requires him to charge sales tax on both his materials and labor, so you get the next factor. — And, then, that’s your final total.You could ask the contractor for his materials invoices and his labor paystubs. — You can verify all of this is per-agreement easily.Now, what if the person gives you a lump-sum contract?For instance, “I’ll do the job for $9,000.”In this case, the (usually) general contractor will pay sales tax at the point of sale (e.g., to his vendors) and then not charge you sales tax. If you have a lump-sum contract and tax is added on at the bottom, then (at least in Texas), you had better have a commercial remodel job, among other things.The law changes when you deal with lump-sum contracts; sometimes, you have to charge your customers sales tax, and sometimes you don’t.If you do have to charge them sales tax, then refer to all of the information above for cost-plus invoicing.Tax law — even relatively simple state sales tax law — is arbitrary. So arbitrary that you may not understand it, and your contractor may not understand it, or he may choose not to abide by it.Sometimes that doesn’t matter. — If you have a fixed sum lump-sum contract, and whether the contractor pays sales tax or not, you still will owe the same amount to the contractor, then who cares what he does?Making calls to the contractor’s office to get receipts and, ultimately, in an effort to make sure he is doing right by you — is not worth it. Not in my opinion.One of the first things you have to do, when you choose a general contractor (or electrical contractor, etc.), is to trust the person. If you don’t already so trust, then you’re already in big trouble.And, if you’re going to argue about the 13 cents you didn’t owe on some package of screws, your job is going to take longer; your stress level is going to go up, in a time when the likelihood your stress is going to go up, day by day, is already high; and, this will likely be the last time you do business with this contractor.Do a risk-reward analysis and figure out if all of this is worth it.