RMI - Tax Begins In North Carolina On 1/1/17

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kwired said:
Might want to double check what is required of you. Here if I bought a $100 item and mark it up 20% I am selling it for $120. I track the sales tax (if I paid it at purchase separately) My sale to the client I would charge (say it is 7% tax rate) 120 plus 8.40 sales tax - customer total is 128.40.
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No matter how you look at it, in our scenario the customer is going to pay $128.40 for the material. If I pay the sales tax when I purchase the material and then add my mark-up the State gets $7.00. If I don't pay the sales tax up front, add my mark-up and then charge the sales tax the State gets $8.40

Now maybe your laws are different, but in general sales tax is not a penalty for the seller, it is a tax on the sale to the final consumer. - it is just something collected at the time of sale by the seller and periodically submitted to the taxing agency by the seller.
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My gripe with all of this is that when I buy material I am the end user or consumer. If I turn around and re-sell it to my customer at a profit I am going to pay State income tax at the end of the year based on my income (if I have any). IMHO, I think it's a form of double taxation. Doing it your way, while respectable and honest, is an accounting nightmare especially for the vast majority of us who specialize in electrical work and not accounting.

Think of all the people buying items on-line who are not paying any sales taxes on items they buy. If I'm not mistaken, States require you to have an office in the State and be registered with the State in order to collect sales tax. If you buy material from HD, irrespective of whether they ship it to you or you pick up in store you are charged sales tax - they have stores in every state. If you buy a generator from EG Direct in Illinois, they don't charge sales tax and you are supposed to be honest enough to pay the sales tax. How many of us are out there doing that ?
 
goldstar said:
No matter how you look at it, in our scenario the customer is going to pay $128.40 for the material. If I pay the sales tax when I purchase the material and then add my mark-up the State gets $7.00. If I don't pay the sales tax up front, add my mark-up and then charge the sales tax the State gets $8.40

My gripe with all of this is that when I buy material I am the end user or consumer. If I turn around and re-sell it to my customer at a profit I am going to pay State income tax at the end of the year based on my income (if I have any). IMHO, I think it's a form of double taxation. Doing it your way, while respectable and honest, is an accounting nightmare especially for the vast majority of us who specialize in electrical work and not accounting.

Think of all the people buying items on-line who are not paying any sales taxes on items they buy. If I'm not mistaken, States require you to have an office in the State and be registered with the State in order to collect sales tax. If you buy material from HD, irrespective of whether they ship it to you or you pick up in store you are charged sales tax - they have stores in every state. If you buy a generator from EG Direct in Illinois, they don't charge sales tax and you are supposed to be honest enough to pay the sales tax. How many of us are out there doing that ?
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If you buy something (particularly on line) and are not charged sales tax, by law in most places you are supposed to report and pay that tax. They haven't found any ways to enforce that law very well though and a lot get away with it. A business operating within state borders likely has other things they can more easily do to threaten to shut the seller down if they are not collecting (and remitting) tax when they should.

Sales tax collections do not increase your taxable income - at the very least you deduct those collections from your net income when you pay the taxes, just like you deduct other costs of doing business before determining your net income. I believe most accounting software doesn't track sales tax as income or expense - until you have a difference in what is collected vs what is submitted then that would be a change for net profit, but often that is just differences from rounding off, or from (usually pretty small) discounts that may be offered to help cover your cost of processing the tax, you can also have increases in tax paid as penalties for late filing, late payments, or breaking other sales tax rules, those are on top of the tax you collect, but are real expenses that reduce your net income.
 
kwired said:
If you buy something (particularly on line) and are not charged sales tax, by law in most places you are supposed to report and pay that tax. They haven't found any ways to enforce that law very well though and a lot get away with it. A business operating within state borders likely has other things they can more easily do to threaten to shut the seller down if they are not collecting (and remitting) tax when they should.

Sales tax collections do not increase your taxable income - at the very least you deduct those collections from your net income when you pay the taxes, just like you deduct other costs of doing business before determining your net income. I believe most accounting software doesn't track sales tax as income or expense - until you have a difference in what is collected vs what is submitted then that would be a change for net profit, but often that is just differences from rounding off, or from (usually pretty small) discounts that may be offered to help cover your cost of processing the tax, you can also have increases in tax paid as penalties for late filing, late payments, or breaking other sales tax rules, those are on top of the tax you collect, but are real expenses that reduce your net income.
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No one ever said that sales tax is part of your income. We are supposed to act as agents for the States and counties we work in and collect sales taxes for them. The least they can do is make it an easy formula, one fixed percentage of tax, and then work out what each county wants at the state level. In the OP's case because he lives and works in NC he now has to keep track of what county he works in and separately pay that tax. It's one thing to act as an agent to collect the tax but now the state and county wants you to use your accounting programs or abilities to properly pay them what they believe is rightfully theirs. And, as if that isn't bad enough, should you happen to be so lucky as to get audited and the state or county finds out that you've made a mistake, they punish you by tacking on interest on the amount you owe. IMHO, What a crock !!!
 
goldstar said:
No one ever said that sales tax is part of your income. We are supposed to act as agents for the States and counties we work in and collect sales taxes for them. The least they can do is make it an easy formula, one fixed percentage of tax, and then work out what each county wants at the state level. In the OP's case because he lives and works in NC he now has to keep track of what county he works in and separately pay that tax. It's one thing to act as an agent to collect the tax but now the state and county wants you to use your accounting programs or abilities to properly pay them what they believe is rightfully theirs. And, as if that isn't bad enough, should you happen to be so lucky as to get audited and the state or county finds out that you've made a mistake, they punish you by tacking on interest on the amount you owe. IMHO, What a crock !!!
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I understand your frustration, but anyone that operates a business has to deal with those type of things. Other business types may offer different taxable goods or services, but the tax basics are still pretty much the same if the businesses operate in the same taxing jurisdiction. Here the state tax is statewide. Any local taxes are handled via the state returns, how often you need to file and submit payments depends on how much you average needing to pay. When I first started my business I only filed and paid sales tax quarterly, but have been filing monthly for a long time now. I can imagine some of the Wal Mart stores or others with the kind of taxes they end up owning file weekly or maybe even daily, but likely with total/near totally automated filing.
 
ceb58 said:
They are pretty much correct. This tax started at the beginning of 2016. But there was a lot of complaining and the only ones it affected were auto mechanics. They held off of the other trades until now.
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just an observation... but... CALIFORNIA doesn't even do this.

i don't file for a tax permit with the state board of equalization.
i pay sales tax on everything i buy. i'm done there. the piper
has been paid. neither i, nor my customer owes anything on
that material.

i charge whatever i charge for whatever i do. i then deduct my
expenses from that, and pay the tax on my net taxable income.

i'm done.

what is this chrome plated BS that says the state needs to collect
SALES TAX on my work, from the person i do it for, AFTER
collecting tax from me, for doing the work? Collecting tax TWICE
on the same money, from two different people? FOR THE SAME
TRANSACTION?

the bluest of the BLUE states wouldn't dare to try this.
and the reddest of the RED states does this?

WTF?

sorry. i've been seeing all this crap about Kommiefornia and
whatnot spewed on the 'net, and this is a bit hard to wrap
my head around.

you fine folks in N.C. better get a handle on this, or you are
going to end up having to take lessons in political correctness
at the institute of political correctness, in santa monica.
 
goldstar said:
No matter how you look at it, in our scenario the customer is going to pay $128.40 for the material. If I pay the sales tax when I purchase the material and then add my mark-up the State gets $7.00. If I don't pay the sales tax up front, add my mark-up and then charge the sales tax the State gets $8.40

My gripe with all of this is that when I buy material I am the end user or consumer. If I turn around and re-sell it to my customer at a profit I am going to pay State income tax at the end of the year based on my income (if I have any). IMHO, I think it's a form of double taxation. Doing it your way, while respectable and honest, is an accounting nightmare especially for the vast majority of us who specialize in electrical work and not accounting.

Think of all the people buying items on-line who are not paying any sales taxes on items they buy. If I'm not mistaken, States require you to have an office in the State and be registered with the State in order to collect sales tax. If you buy material from HD, irrespective of whether they ship it to you or you pick up in store you are charged sales tax - they have stores in every state. If you buy a generator from EG Direct in Illinois, they don't charge sales tax and you are supposed to be honest enough to pay the sales tax. How many of us are out there doing that ?
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Are you figuring this right? You buy $100 of materials and pay the tax up front, the state gets $7.00. You add 20% markup on the material cost less tax and the customer pays $128.40, but you get credit for the $7.00 you already paid and the net additional to the state is $1.40. Total is then $8.40 either way, unless you markup your total material cost of $107.00 to $128.40 and put the tax on that for a total of $137.39 (rounded). Now the supplier gets $100, you get $21.40, and the state gets $9.99 but now you're taxing the tax.
 
gadfly56 said:
Are you figuring this right? You buy $100 of materials and pay the tax up front, the state gets $7.00. You add 20% markup on the material cost less tax and the customer pays $128.40, but you get credit for the $7.00 you already paid and the net additional to the state is $1.40. Total is then $8.40 either way, unless you markup your total material cost of $107.00 to $128.40 and put the tax on that for a total of $137.39 (rounded). Now the supplier gets $100, you get $21.40, and the state gets $9.99 but now you're taxing the tax.
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Scenario # 1 Material - $100 + 7% sales tax = $107.00 x 20% markup = $128.40
Supply house gets $100.00, State gets $7.00 (via the supply house), you get $21.40 and Customer pays $128.40

Scenario # 2 Material - $100.00 x 20% markup = $120.00 + 7% sales tax = $128.40
Supply house gets $100.00, State gets $8.40 (via your company), you get $20.00 - Customer still pays $128.40

Scenario # 2 is the correct way to do this. The State wants that extra $ 1.40 vig. You are not allowed to make those extra $$ on the sales tax (even though you'll end up paying State an Fed income tax at year end on it) unless you live in CA with Fulthrotl :p
 
Fulthrotl said:
.
just an observation... but... CALIFORNIA doesn't even do this.

i don't file for a tax permit with the state board of equalization.
i pay sales tax on everything i buy. i'm done there. the piper
has been paid. neither i, nor my customer owes anything on
that material.

i charge whatever i charge for whatever i do. i then deduct my
expenses from that, and pay the tax on my net taxable income.

i'm done.

what is this chrome plated BS that says the state needs to collect
SALES TAX on my work, from the person i do it for, AFTER
collecting tax from me, for doing the work? Collecting tax TWICE
on the same money, from two different people? FOR THE SAME
TRANSACTION?

the bluest of the BLUE states wouldn't dare to try this.
and the reddest of the RED states does this?

WTF?

sorry. i've been seeing all this crap about Kommiefornia and
whatnot spewed on the 'net, and this is a bit hard to wrap
my head around.

you fine folks in N.C. better get a handle on this, or you are
going to end up having to take lessons in political correctness
at the institute of political correctness, in santa monica.
Click to expand...
We have options on how to handle sales tax as contractors here. First option is to collect and remit sales tax on all "taxable sales" which for majority of EC's ends up being most physical property, maybe shipping charges and a few other miscellaneous items - labor usually isn't taxable, but one must look into tax codes to see what services are taxable, if you do more then just electrical work technically you could run into some taxable services you do perform. Under this option you are permitted to purchase items tax exempt because you will be taxing them when you sell them.

The second option is ideal for contractors that do nothing but take goods and convert them to real estate. In that case the contractor is the consumer, does not purchase items tax exempt, does not collect sales tax - but only when those items are converted into real estate. If you do other activities like repair work then things start to change. If you do work under this option and want to save on tax when you do work for a tax exempt owner like a church, school, government agency, etc. You can go to extra efforts to make purchases for those projects under a tax exempt status, if you don't you will be eating sales tax on your purchases for those particular projects because in general you pay sales tax on all your purchases.

There is a third option that is sort of a combination of the first two - but I don't think there are many contractors that take this option seems it would be more complicated to follow.

No matter what option you take it is not intended to pay double sales tax on any item sold, you need to determine who is the actual consumer that gets taxed and tax due is based on the sale to that party.
 
Several years ago we had a controversy with contractors and sales tax. They decided to tax certain services, and most contractors were effected and those that never charged sales tax before were suddenly being forced to collect and remit this tax when they performed services that qualified as taxable.

This was not a punishment forced on them by the Dept of Revenue - like most seemed to think it was. It was a bill passed by the legislature that caused the situation. The Dept of Revenue was just following the laws. It was the lawmakers that were the ones to blame if you had an issue with the situation.

Did not read through OP's link but sound similar to what we had, was maybe about 10 years or so ago, only lasted a year or two and they put it back the way it had always been or at least very close to it. I think it was a temporary way of collecting more funds for either state general funds or possibly for a specific purpose.
 
kwired said:
Several years ago we had a controversy with contractors and sales tax. They decided to tax certain services, and most contractors were effected and those that never charged sales tax before were suddenly being forced to collect and remit this tax when they performed services that qualified as taxable.

This was not a punishment forced on them by the Dept of Revenue - like most seemed to think it was. It was a bill passed by the legislature that caused the situation. The Dept of Revenue was just following the laws. It was the lawmakers that were the ones to blame if you had an issue with the situation.

Did not read through OP's link but sound similar to what we had, was maybe about 10 years or so ago, only lasted a year or two and they put it back the way it had always been or at least very close to it. I think it was a temporary way of collecting more funds for either state general funds or possibly for a specific purpose.
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And that is what has happened here. The legislature pass this into law. They bragged on how they cut personal income tax rate while imposing new taxes behind closed doors.
 
ceb58 said:
And that is what has happened here. The legislature pass this into law. They bragged on how they cut personal income tax rate while imposing new taxes behind closed doors.
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Making a change to income tax will get everyone's attention. So will changing sales tax rate by a half percent. But changing what is a taxable sale mostly only gets the attention of those impacted by the change.

Contractors are not so much effected by this particular change (if it is about the same change NE once had) because it will add a direct cost for them, it just means they will collect and remit taxes they weren't collecting before, and add additional paperwork they weren't doing before. I doubt many lose a project or a service call because of the sales tax issue.
 
Ravenvalor said:
If you do business in North Carolina you should call your congressmen and complain like hell.
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I don't know how legislation works in NC, but presuming you mean state level Congressman and not a US House congressman.

Here we have State Senators - no "State Congressmen".

If the residents don't like the tax did they complain when the original bill was introduced?

Did lawmakers sneak it in as a part of something else and it went somewhat unnoticed?

If it is a similar tax change to what we had a few years back - not many residents in general even knew about it or were impacted enough to notice. The contractors weren't being charged the tax - but had the additional burden of collecting and remitting it when they weren't used to doing it before.
 
Time To Start Filing Your New Forms

Time To Start Filing Your New Forms

So the E-500 Sales and Use Tax Return is due by the 20th of each month starting this month.

If you did not charge tax for labor on any of the jobs that you did then you also have to submit an E-589CI for each of those jobs. Those forms have to be signed by the customer (There may be a provision if the job was permitted).

If you charged labor tax for some of the work on a job but did not charge labor tax for other parts of the same job then you have to figure that out and put the labor tax free portion on the E-589CI form.

If you purchased tools and equipment for your company then you may have to fill out other forms such as the D-400 and the E-500J.

Does all of this sound time consuming? Do not worry. The State has made it real simple for you to navigate all of this info on their friendly website www.dor.state.nc.us

:)
 
Updates

Updates

Here are a few things I have uncovered.

1) From Brian Balfour with the Civitas Institute.

"The philosophy behind the tax changes being implemented in the last few years, from my understanding from comments by the legislature, include:


  • lowering income tax rates, and becoming less reliant on the income tax as a source of income
  • broadening the tax base, including the sales tax base - which would include taxing services not previously taxed
  • expanding the sales tax base to include services better reflects the modern economy, as the majority of transactions are now services rather than goods
Hope this helps.


Thanks,
Brian
Executive Vice President
Civitas Institute"

2) A direct phone number to the NCDOR Sales and Use Tax people who explain this BS to us. 877-252-4487


3) A recent finance committee presentation helps to clarify those changes. You can see the presentation here, the sales tax section begins on page 46: [url]http://www.ncleg.net/documentsites/committees/house2017-24/02-07-2017/House%20Finance%20Committee%20Briefing%20-%20Feb%207%20FINAL.pdf






[/URL]
 
Ravenvalor said:
Here are a few things I have uncovered.

1) From Brian Balfour with the Civitas Institute.

"The philosophy behind the tax changes being implemented in the last few years, from my understanding from comments by the legislature, include:


  • lowering income tax rates, and becoming less reliant on the income tax as a source of income
  • broadening the tax base, including the sales tax base - which would include taxing services not previously taxed
  • expanding the sales tax base to include services better reflects the modern economy, as the majority of transactions are now services rather than goods
Hope this helps.


Thanks,
Brian
Executive Vice President
Civitas Institute"

2) A direct phone number to the NCDOR Sales and Use Tax people who explain this BS to us. 877-252-4487


3) A recent finance committee presentation helps to clarify those changes. You can see the presentation here, the sales tax section begins on page 46: http://www.ncleg.net/documentsites/... Finance Committee Briefing - Feb 7 FINAL.pdf
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What you mentioned so far doesn't change the spending budget one bit, just where the funds originate from.

If the services being taxed are services only certain people regularly use - then it increases the overall tax burden on those people.

If proceeds of a certain tax are used for things more associated with what is being taxed, like motor fuel taxes primarily going to road funds, then those that benefit the most are paying the most in that area - in many ways pretty fair concept. But the bulk of the general funds probably should come from more general taxes that are distributed more across the board of the taxpayers.
 
Ravenvalor said:
Are you referring to food?
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Not necessarily.

Taxing cigarettes to raise the general fund isn't fair to those that use them. Taxing cigarettes for state programs that have some relation to cigarette use is making those users pay a bigger share for those services.

It can be hard to draw the lines on what is fair to the most people in some situations.

An area city that is sort of an economic hub for the region had added a tax in recent years for hotel rooms and restaurants, primarily to help with city streets and other infrastructure that get maintenance demands because of non city residents usage on those items. Does kind of put some extra funding in the budget from those non residents when they use those facilities, but the restaurants and hotels still didn't like it, and the residents still pay those fees if they do business there as well. It is hard to make a tax that is completely fair to all involved.
 
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