Charging Sales Tax (California)

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supergeek

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Hi All,

I'm fairly new to contracting and was wondering about charging sales tax. Since I started my business, I've always paid the sales tax on my materials when I buy them. Then I charge the customer an all inclusive price, writing up the invoice like this: "furnish labor and materials to install......." Recently someone questioned me about it, so now I'm second guessing myself. I figure the state gets it's sales tax money, so they should be happy, right?
So I'm just wondering if the way I'm doing it seems ok. Anyone have any experience on this issue specific to California? Is there a certain point where it would make sense to pay for materials wholesale, then collect the sales tax from the customer? I guess if a company was really huge and kept a giant inventory it might make sense to not have 8.25% tied up in sales tax on the inventory. For a small contractor, though, it seems like a lot of extra headaches to track everything and keep up on the paperwork.
Anyway, I appreciate any advice you could give me. Thanks!
 
supergeek said:
Hi All,

I'm fairly new to contracting and was wondering about charging sales tax. Since I started my business, I've always paid the sales tax on my materials when I buy them. Then I charge the customer an all inclusive price, writing up the invoice like this: "furnish labor and materials to install......." Recently someone questioned me about it, so now I'm second guessing myself. I figure the state gets it's sales tax money, so they should be happy, right?
So I'm just wondering if the way I'm doing it seems ok. Anyone have any experience on this issue specific to California? Is there a certain point where it would make sense to pay for materials wholesale, then collect the sales tax from the customer? I guess if a company was really huge and kept a giant inventory it might make sense to not have 8.25% tied up in sales tax on the inventory. For a small contractor, though, it seems like a lot of extra headaches to track everything and keep up on the paperwork.
Anyway, I appreciate any advice you could give me. Thanks!
Click to expand...

Maybe you should hire someone like this to answer that question

http://www.salestaxgroup.com/new_construction.html

Leone, Demeo and Associates

Common Terms and How We Can Help You
Sales Tax Group Office Location:
Carlsbad Office
5790 Fleet Street #120
Carlsbad, CA 92008
Phone (760) 931-9900
Fax (760) 931-9913

California

Construction contractors are usually consumers of materials and pay sales tax on the purchase of materials they use in construction contracts. In fact, when billing lump sum on invoices, in some cases a sales tax permit will not be required.

One of the biggest problems contractors face is when using materials to manufacture fixtures, machinery and equipment. This scenario turns the contractor into a retailer and they must now charge tax on the retail selling price of the fixture.

Subcontractors also need to be aware that they are not allowed to take resale cards from prime contractors for furnished and installed materials or fixtures.

The general rule states that construction contractors are consumers of materials and fixtures they furnish and install under lump sum and time and material contracts. They are retailers of machinery and equipment, the price at which similar quantities ready for installation are sold at retail delivered in the market area where the installation takes place.

Manufacturing credits are available to contractors who manufacture tangible personal property. This credit is calculated on the equipment purchased and used by the contractor to manufacture fixtures, machinery and equipment.

Multistate

Many states follow California laws regarding construction contractors, but there are exceptions. One example is Arizona where the prime contractor pays tax on 60% of the contract price. In this case, tax would not be due on the cost of materials.
 
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