This doesn't seem correct at all. Here in NJ, as a contractor we pay no sales tax on items that will be resold, such as pipe, elbows, fire alarm equipment, etc. You get a reseller's certificate and a Certificate of Authority and all is good.
Apparently different from neighboring NY. We pay sales tax on material for new construction (capital improvement) which gets added to the cost of the materials. The owner or customer only sees the bottom line, no tax is broken out.
When the material is used for a repair, as long as we have a resellers certificate we don't pay any tax on it to the supply house but we charge the customer tax on both the material and labor. We are just like a store in this case- a reseller.
Only problem is the supply house isn't going to want to go back and forth charging tax one time and not the next. We also buy items for stock, so some things may get used in new construction and the same item for repairs. So most of us just pay the tax on everything. We can claim the tax we paid on any resale items as a credit on our return (big PITA paperwork) or, and I know it isn't right, charge the customer for the material plus tax that we paid, mark up that amount, add the labor and tax it all again. Sorry.
You can weigh that against not paying or collecting tax on something and getting caught.