Tax on labor

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chris1971

Senior Member
Location
Usa
The state of Minnesota where I live and have my own business is considering a sales tax of 5.5%on the labor we perform. Does anyone else have a tax on the labor performed?
 

Smart $

Esteemed Member
Location
Ohio
The state of Minnesota where I live and have my own business is considering a sales tax of 5.5%on the labor we perform. Does anyone else have a tax on the labor performed?
Been a while since I've been involved with the charging of sales tax, but I believe Ohio requires sales tax to be charged if the labor is part of a service-oriented sale.
 

goldstar

Senior Member
Location
New Jersey
Occupation
Electrical Contractor
In NJ labor is subject to sales tax. 7%, just like everything else.
That is correct for NJ. In addition, I just found out something else at a Chamber of Commerce meeting this week that I wasn't aware of. I've been buying material at the supply house, paying sales tax on it and then marking it up and selling it to my customers. Pretty normal operation I would say. When I do any work that would be considered a capital improvement I have the customer sign a NJ-ST-8 form and I don't charge any tax on anything. When I perform a service call (like replacing a burnt receptacle) I charge for the material at the marked up rate and my labor which is then taxed at 7%. Now, the accountants at this meeting tell me if you itemize your bill you're supposed to recharge sales tax on the material you sell as well as the labor. Seems like double taxation to me. So, I guess if you quote someone a price for work and it's one price for labor and material you don't have to charge sales tax. Someone correct me if I'm wrong.
 

Smart $

Esteemed Member
Location
Ohio
... Now, the accountants at this meeting tell me if you itemize your bill you're supposed to recharge sales tax on the material you sell as well as the labor. Seems like double taxation to me. ...
I don't know how NJ sales tax works. Heck, it's been so long since I've had an Ohio vendor license, I may not know how Ohio's sales tax works!!! But as I recall, I had to charge sales tax on the total amount of service fees... i.e. labor and material, regardless whether it was itemized or not. However, as a vendor I was tax exempt on any material purchased that I would sell retail, i.e. wholesale purchasing, and had to submit a tax exempt form to wholesaler. For items I purchased retail (paid sales tax) and sold retail (charged sales tax), I could reduce my sales tax liability by the amount of sales tax I already paid, i.e. remit only the difference.

What it amounts to is, you have sales tax liability on your markup.
 
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LEO2854

Esteemed Member
Location
Ma
That is correct for NJ. In addition, I just found out something else at a Chamber of Commerce meeting this week that I wasn't aware of. I've been buying material at the supply house, paying sales tax on it and then marking it up and selling it to my customers. Pretty normal operation I would say. When I do any work that would be considered a capital improvement I have the customer sign a NJ-ST-8 form and I don't charge any tax on anything. When I perform a service call (like replacing a burnt receptacle) I charge for the material at the marked up rate and my labor which is then taxed at 7%. Now, the accountants at this meeting tell me if you itemize your bill you're supposed to recharge sales tax on the material you sell as well as the labor. Seems like double taxation to me. So, I guess if you quote someone a price for work and it's one price for labor and material you don't have to charge sales tax. Someone correct me if I'm wrong.
That sounds good to me , you just add the sales tax on to the grand total.
 

Rick Christopherson

Senior Member
Now, the accountants at this meeting tell me if you itemize your bill you're supposed to recharge sales tax on the material you sell as well as the labor. Seems like double taxation to me.
That is double taxation. So if you are charging the end-user taxes, then you are supposed to be purchasing the materials tax-exempt from your supplier.

I haven't found anything that suggests Minnesota is considering this. It would be a huge change in the taxation rules, so I doubt it would ever pass. Currently, anything dealing with the construction of real property is tax exempt, but I believe repair is not. This would lead to a substantial jump in home construction costs, and in the current housing market,that would slow the market even further.
 

PetrosA

Senior Member
In PA it's my understanding that only contracted maintenance work is subject to sales tax, or companies that have a tax exempt status when buying charge on their sales. I don't know how it works here in the US, but in Europe it gets very complicated with the VAT tax where you pay tax on your purchase, charge tax on your sale, and are liable for the difference between what you already paid and what you collected then have to do yearly inventories to show a paper trail for all the items you bought. In other words, don't try and buy anything for yourself on the company or you risk getting caught. I would guess it's potentially even stricter with showing where stock went here if you have a tax exempt status and can buy without sales tax in the first place.
 

kwired

Electron manager
Location
NE Nebraska
I don't know how NJ sales tax works. Heck, it's been so long since I've had an Ohio vendor license, I may not know how Ohio's sales tax works!!! But as I recall, I had to charge sales tax on the total amount of service fees... i.e. labor and material, regardless whether it was itemized or not. However, as a vendor I was tax exempt on any material purchased that I would sell retail, i.e. wholesale purchasing, and had to submit a tax exempt form to wholesaler. For items I purchased retail (paid sales tax) and sold retail (charged sales tax), I could reduce my sales tax liability by the amount of sales tax I already paid, i.e. remit only the difference.

What it amounts to is, you have sales tax liability on your markup.

Yes, in general sales tax is charged based on amounts of taxable items on the sales bill, invoice, etc.

If you paid tax when you purchased item(s) then you should be able to take a credit on your sales tax return for the amount of tax already paid, sales tax is intended to be paid by the final consumer, not everyone that had a hand in selling a product (or service).
 

kwired

Electron manager
Location
NE Nebraska
A few years back, Nebraska did have a sales tax on labor for contractors. What exactly was taxable was confusing for many. New construction and major additions were not taxable, but pretty much everything else was. Just how much of an addition was necessary to fall under the non taxable condition was not clear at all. They only had this for a year, maybe two years then reverted back to what they have always had, no tax on contractor or service labor.

Sales tax for contractors here can be a little complicated to start with, the simple way is an option where contractor pays sales tax on all purchases and doesn't charge or collect tax on material sales. But the change that required charging and collecting sales tax on certain services and labor made some of these guys that never dealt with sales tax ever before end up getting a sales tax permit and charging and collecting taxes they never had to do before. This included anybody that performed services to items that were part of or annexed into real estate. Was a big mess and I am glad it went away, and hope it never comes back.
 

kwired

Electron manager
Location
NE Nebraska
I'm not sure if this is of any value to anyone but this is a copy of a NJ ST-8 capital improvement form. On the second page it explains what types of installations sre exempt from taxes and which are taxable.

http://www.state.nj.us/treasury/taxation/pdf/other_forms/sales/st8.pdf

I did not read it thouroughly, but it looks like you are supposed to collect and remit sales tax in general, if the project is a capital improvement the owner can option to not pay sales tax by filling out this form and giving it to the contractor. Without the form you are still supposed to collect tax as usual. Kind of similar thing that happens (I would guess in most areas) where you make a sale to a tax exempt organization like churches or schools, government agency including cities and villages, etc. If you don't have properly filled out exemption forms on file you are supposed to charge them sales tax.

That form does not mention just exactly what items are taxable (including possibly labor charges), just what circumstances they are not taxable in a capital improvement project.
 

goldstar

Senior Member
Location
New Jersey
Occupation
Electrical Contractor
I did not read it thouroughly, but it looks like you are supposed to collect and remit sales tax in general, if the project is a capital improvement the owner can option to not pay sales tax by filling out this form and giving it to the contractor. Without the form you are still supposed to collect tax as usual. Kind of similar thing that happens (I would guess in most areas) where you make a sale to a tax exempt organization like churches or schools, government agency including cities and villages, etc. If you don't have properly filled out exemption forms on file you are supposed to charge them sales tax.
You are correct. I make the determination at the time I install new materials as to whether it's taxable or not. If I get audited I would be required to make a case as to why I didn't charge sales tax. Granted, a lot of gray areas.
That form does not mention just exactly what items are taxable (including possibly labor charges), just what circumstances they are not taxable in a capital improvement project.
On the back page they give you examples of what types of things are taxable. I actually went to the State tas office and that's the way it was explained to me.

We also haver the following forms that are used :

NJ-ST-3 is a Resale Certificate. This would be issued to my supplier if I were say a wholesaler that was buying finished goods for sale to the public -

http://www.state.nj.us/treasury/taxation/pdf/other_forms/sales/st3.pdf

You could see how this could become a PITA if I had to do this for every time I went to the supply house and for every customer I do work for

NJ-ST-13 is a contractors exempt purchase certificate that I issue to my supplier when doing business for a tax exempt organization -

http://www.state.nj.us/treasury/taxation/pdf/other_forms/sales/st13.pdf
 

kwired

Electron manager
Location
NE Nebraska
You are correct. I make the determination at the time I install new materials as to whether it's taxable or not. If I get audited I would be required to make a case as to why I didn't charge sales tax. Granted, a lot of gray areas.
On the back page they give you examples of what types of things are taxable. I actually went to the State tas office and that's the way it was explained to me.

We also haver the following forms that are used :

NJ-ST-3 is a Resale Certificate. This would be issued to my supplier if I were say a wholesaler that was buying finished goods for sale to the public -

http://www.state.nj.us/treasury/taxation/pdf/other_forms/sales/st3.pdf

You could see how this could become a PITA if I had to do this for every time I went to the supply house and for every customer I do work for

NJ-ST-13 is a contractors exempt purchase certificate that I issue to my supplier when doing business for a tax exempt organization -

http://www.state.nj.us/treasury/taxation/pdf/other_forms/sales/st13.pdf

I give a similar form to my suppliers but it has places to indicate whether it is for an individual exempt sale or a blanket exemption that covers all sales to my business. If I purchase items tax free then use them for my own use instead of reselling them then I am supposed to pay "consumer use tax" on those items when I submit my sales tax return at the end of the tax period, which is monthly for me. Depending on how much expected tax liability you expect to have determines how long the tax period is. Some only have to pay quarterly some may have to pay weekly, IDK for certain but maybe even daily, think about how much tax a Walmart store likely collects daily.

Nebraska's form 13 sales tax exemption certificate is kind of a universal form for almost all cases where you can opt out of paying sales tax (presuming you are qualified to be exempted), and you only fill out the sections of the form that apply to your situation. I send same form to suppliers and recieve same form from tax exempt customers - just with different sections of the form filled out.
 

JES2727

Senior Member
Location
NJ
That is correct for NJ. In addition, I just found out something else at a Chamber of Commerce meeting this week that I wasn't aware of. I've been buying material at the supply house, paying sales tax on it and then marking it up and selling it to my customers. Pretty normal operation I would say. When I do any work that would be considered a capital improvement I have the customer sign a NJ-ST-8 form and I don't charge any tax on anything. When I perform a service call (like replacing a burnt receptacle) I charge for the material at the marked up rate and my labor which is then taxed at 7%. Now, the accountants at this meeting tell me if you itemize your bill you're supposed to recharge sales tax on the material you sell as well as the labor. Seems like double taxation to me. So, I guess if you quote someone a price for work and it's one price for labor and material you don't have to charge sales tax. Someone correct me if I'm wrong.

Goldstar,
In NJ, the direct pass through of material costs is not subject to sales tax. Meaning if you sell the material at cost (including the sales tax you already paid), you do not charge additional sales tax. If you mark up the material then it is subject to taxation. In actually, just the mark-up is taxed, but that's cumbersome to figure plus your customer would be able to calculate how much profit you're making on the material you sold to him. If you charge one price that includes labor and material combined the entire amount is taxed. I have seen invoices with a separate line for materials that just says "Materials", and then no charge for sales tax. I guess if you were to be audited you could easily produce some receipts to match the amount charged and convince the auditor that it was just a direct pass through of costs.
I charge sales tax on everything, except for capital improvement/new construction.
 

220/221

Senior Member
Location
AZ
The state of Minnesota where I live and have my own business is considering a sales tax of 5.5%on the labor we perform. Does anyone else have a tax on the labor performed?

Kind of.

In AZ, we applied full sales tax (pushing 10% now) on only the materials on T&M jobs.

In a recent money grab, the state now requires us to now charge the same tax as on contracting on the whole amount. It designates something like 35% labor and 65% materials. On a simple T&M job with $2 in materials, the customer gets screwed.

Labor only doesn't get taxed........yet
 

goldstar

Senior Member
Location
New Jersey
Occupation
Electrical Contractor
Goldstar,
In NJ, the direct pass through of material costs is not subject to sales tax. Meaning if you sell the material at cost (including the sales tax you already paid), you do not charge additional sales tax. If you mark up the material then it is subject to taxation. In actually, just the mark-up is taxed, but that's cumbersome to figure plus your customer would be able to calculate how much profit you're making on the material you sold to him.
I agree and understand. But, I can't imagine why someone would buy something for a dollar and sell it for a dollar. The cost of material becomes more than you think when you have to drive to the supply house on your time and use your gas
If you charge one price that includes labor and material combined the entire amount is taxed.
I'm not sure I agree with that.
I have seen invoices with a separate line for materials that just says "Materials", and then no charge for sales tax. I guess if you were to be audited you could easily produce some receipts to match the amount charged and convince the auditor that it was just a direct pass through of costs. I charge sales tax on everything, except for capital improvement/new construction.
You may have the right idea.
 
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