Sales tax

[Peter Furrow]

The subject of sales tax always causes confusion among contractors and even accountants. If a service company itemizematerials and labor on his invoice does he have to charge sales tax? What if he already paid sales tax when he purchased the materials at a supply house or Big box store?
Also, If the contractor has sales tax exemption should he charge sales tax on the materials and labor?

 

[Little Bill]

A lot of that is State driven. Here, we pay tax at the SH and do not charge extra tax to the customer. Now if you have a tax exempt account with the State and do not pay tax on supplies, you have to collect the tax from the customers and report/pay it to the State.

 

[hbiss]

A lot of that is State driven

A lot? Every state is different. So it would not be possible for anyone here not from FL to give you advice. Your BEST and only advice would come from an accountant, and if you have one that can't figure it out, find a smarter one. Kind of makes you wonder what else he screwed up.

-Hal

 

[kwired]

There are many similarities but every state does have different sales tax rules.

Contractor having exemption usually means they will be charging tax when they sell the items, by rules they are considered to be about same thing as a retailer as far as how they apply sales tax. There may be options on how to handle sales tax for contractors also. One is to operate like a retailer and charge tax on your sales, other is you the contractor are considered the consumer and you pay tax on your purchases but do not charge tax when you sell your finished product. There are advantages and disadvantages to either way and you must choose which way to go. They generally will not let you switch back and forth between those methods. If you do service work or "over the counter" type sales often you must charge sales tax on those kinds of sales regardless of how you handle other contracting sales.

You may even find your labor is taxable in some situations in some places. Generally it is not though.

 

[hbiss]

There are many similarities but every state does have different sales tax rules.

Contractor having exemption usually means they will be charging tax when they sell the items, by rules they are considered to be about same thing as a retailer as far as how they apply sales tax. There may be options on how to handle sales tax for contractors also. One is to operate like a retailer and charge tax on your sales, other is you the contractor are considered the consumer and you pay tax on your purchases but do not charge tax when you sell your finished product. There are advantages and disadvantages to either way and you must choose which way to go. They generally will not let you switch back and forth between those methods. If you do service work or "over the counter" type sales often you must charge sales tax on those kinds of sales regardless of how you handle other contracting sales.

You may even find your labor is taxable in some situations in some places. Generally it is not though.

Well, all I can say is that that's nothing like what we do here in NY. Like I said, talk to an accountant.

-Hal

 

[Another C10]

If a service company itemizematerials and labor on his invoice does he have to charge sales tax? What if he already paid sales tax when he purchased the materials at a supply house or Big box store?

I'd suggest just keeping it simple, Buy the product, pay the sales tax then add the % pertaining to your standard and your done. No need to deal with any other agency to assure your financial obligations are on the up and up. The last thing you want to deal with is an audit concern.

 

[PaulMmn]

There are literally thousands of sales tax 'zones.' State, county, municipality, and subdivisions within a municipality. We have a service that sends us updates at least monthly with new rates, exceptions, and categories based on what's being sold, to whom, under what circumstances. Not for the faint of heart!

 

[electrofelon]

You may even find your labor is taxable in some situations in some places. Generally it is not though.

I thought labor was usually taxed? Why wouldnt it be? In NY there is a broad exemption on sales tax for "capital improvements" (still pay tax at the source for materials) but I thought we were more of an oddball.

 

[Dennis Alwon]

I'd suggest just keeping it simple, Buy the product, pay the sales tax then add the % pertaining to your standard and your done. No need to deal with any other agency to assure your financial obligations are on the up and up. The last thing you want to deal with is an audit concern.

Each state may have different rules. NC just started requiring sales tax on labor as long as the job is not a capital improvement. If you pay sales tax and do not mark up your materials then you are good to go however if you mark it up then you must charge sales tax on the final sales. We got tax free accounts and then just pay the sales tax at the end of the month. Otherwise you are paying double tax if you mark materials up. The state wants the tax on the last sale so they get the most taxes for the dollar.

 

[kwired]

Well, all I can say is that that's nothing like what we do here in NY. Like I said, talk to an accountant.

-Hal

How about go to the tax authority web site for wherever the sale is to take place?

You don't have to live or be based there for their rules to apply you just need to sell product or services there and their local rules apply.

Whether or not you can purchase items that you resell tax free will likely be more dependent on the rules where you are based from.

There may still be options in a lot of places but you need to pick one when you register and usually will not be able to switch those options on demand, it would be a one time thing granted by special permission to do so.

 

[kwired]

A lot of that is State driven. Here, we pay tax at the SH and do not charge extra tax to the customer. Now if you have a tax exempt account with the State and do not pay tax on supplies, you have to collect the tax from the customers and report/pay it to the State.

Again every tax jurisdiction has their own rules, though I'd guess there is many similarities. You might have had some options when assigned your tax permit, or whatever they call it. As a contractor (using that term a little loosely and applies to those that turn goods and services into real estate)real estate generally doesn't have sales tax on it. Items purchased to construct it often are taxable when they are sold. If you do have options on how to apply sales taxes in these types of transactions it will probably be either you are allowed to purchase items tax free and then charge tax on your sale or you you will pay tax on your purchases but will not charge tax on your sale. It may get more complex if you do projects that annex items into real estate as well as do other projects that do not. If you purchase tax free and then charge tax when you sell items it likely doesn't have as much complexity - you basically tax all your sales, though you can have tax exempt customer here or there (schools, churches, government agencies, other non profits) that can throw a wrench into the gears at times, but if you are the type that pays tax on purchase but does not charge tax on sales then you likely still pay tax on your purchase but don't change a thing on your sale even to a tax exempt customer.

So if you do have some options you choose which ever one you think suits your needs the most - but is sort of a one time choice and would need special permision should you decide to change it later.

I'd guess no matter where you are if you are supposed to charge sales tax then your billing documents should at least be broken down in some way to indicate taxable items and non taxable items, and probably the amount of tax applied if there is a mixture of both in the sale.

 

[hbiss]

Here. You figure it out.

https://floridarevenue.com/Forms_library/current/gt800007.pdf

-Hal

 

[cdslotz]

I thought labor was usually taxed? Why wouldnt it be? In NY there is a broad exemption on sales tax for "capital improvements" (still pay tax at the source for materials) but I thought we were more of an oddball.

Labor is taxed to the end user. If I do a job direct to customer, sales tax is added to the bottom line. If I do work with a GC, only materials are taxed. The GC is responsible for tax to the owner

 

[hbiss]

I thought labor was usually taxed? Why wouldnt it be? In NY there is a broad exemption on sales tax for "capital improvements" (still pay tax at the source for materials) but I thought we were more of an oddball.

In NY, a capital improvement is new construction or the installation of something that cannot be removed without destroying it or whatever it is attached to. The contractor pays the sales tax on the materials he purchases. His customer does not pay sales tax on the invoice. BUT it is expected that the contractor will roll the sales tax amount he paid at the supply house into his material cost shown on the invoice. The contractor has to get the customer to complete and sign a Certificate of Capital Improvement which the contractor retains for if he is audited.

A repair is a little different. A repair is changing a wall switch, hanging a fixture, finding a bad breaker, etc., something that can be removed or replaces something else. (They call those items Tangible personal property.) The contractor DOES NOT need to pay the sales tax on repair materials, that's why you give your suppliers a Sales Tax Resale Certificate. But if you are like any of us, who's going to keep track of the materials used for repairs and those used for new construction? Also the supply house isn't going to want to hear "charge me tax on this but not that." So the usual way is to just pay the tax on everything and roll that into the repair material cost also. With a repair, the customer pays sales tax on the invoice bottom line- labor and material.

When you do any kind work for a Exempt Organization like a church or other non-profit it is similar to a Capital Improvement. They must provide you with an Exempt Organization Certificate, again to keep on file.

If you are working as a sub for a GC, to you it's a Capital Improvement unless they supply all the materials. Then you are a straight 1099.

Oh, if you charge for estimates, that amount is not taxable.

-Hal

 

[electrofelon]

In NY, a capital improvement is new construction or the installation of something that cannot be removed without destroying it or whatever it is attached to. The contractor pays the sales tax on the materials he purchases. His customer does not pay sales tax on the invoice. BUT it is expected that the contractor will roll the sales tax amount he paid at the supply house into his material cost shown on the invoice. The contractor has to get the customer to complete and sign a Certificate of Capital Improvement which the contractor retains for if he is audited.

A repair is a little different. A repair is changing a wall switch, hanging a fixture, finding a bad breaker, etc., something that can be removed or replaces something else. (They call those items Tangible personal property.) The contractor DOES NOT need to pay the sales tax on repair materials, that's why you give your suppliers a Sales Tax Resale Certificate. But if you are like any of us, who's going to keep track of the materials used for repairs and those used for new construction? Also the supply house isn't going to want to hear "charge me tax on this but not that." So the usual way is to just pay the tax on everything and roll that into the repair material cost also. With a repair, the customer pays sales tax on the invoice bottom line- labor and material.

When you do any kind work for a Exempt Organization like a church or other non-profit it is similar to a Capital Improvement. They must provide you with an Exempt Organization Certificate, again to keep on file.

If you are working as a sub for a GC, to you it's a Capital Improvement unless they supply all the materials. Then you are a straight 1099.

Oh, if you charge for estimates, that amount is not taxable.

-Hal

Yes, just to be clear, I was aware of the NYS rules. When I said "I thought labor was usually taxes, why wouldn't it be" I was referring to other states as I thought NY was mostly unique in this, but according to Dennis, NC has the capital improvement clause too.

I have never collected sales tax in NYS. According to the wording of my invoices, everything I do is a capital improvement.

 

[Eddie702]

My old boss was pretty smart on this stuff. He told me "sales tax only get's paid once by the final user" If you a contractor and have a sales tax exemption you collect the tax base on your selling price to your customer and pay the tax to the state. States are different. MA only charges ST on material CT charges on material and labor in some cases.

If you by material at a Big Box and get taxed then the tax is paid. You can only recoup the tax from your customer that you paid. Can't mark up the tax

 

[Another C10]

if you mark it up then you must charge sales tax on the final sales

It may be someones rule or law but think about it, any mark up ends up being profit and therefor unless used up on other tax free operating costs the remainder profits from markups become taxed as income tax .. There really is no free income regardless if its an hourly wage or a 30% increase on supplies. Maybe I'm way off base. My accountant says my records look good, Tax man gets their share.

 

[hbiss]

If you by material at a Big Box and get taxed then the tax is paid. You can only recoup the tax from your customer that you paid.

No, you can claim a credit on your Sales Tax return. But most of us just add the tax to the cost of the material because it's too difficult to keep track. Yeah, the customer gets charged tax on the total of the material, plus the tax you paid for it when you bought it, plus your markup, but that's life.

I have never collected sales tax in NYS. According to the wording of my invoices, everything I do is a capital improvement.

A friend of mine who is also an EC has been in business for over forty years. When he started the business, the accountant he had at the time told him that he didn't need to collect sales tax which he never did. If I were in his shoes, I wouldn't be able to sleep at night worrying about getting a letter from the NYS Department to Taxation and Finance because they want to do an audit. Most of us do at least a fair amount of service work that we need to collect tax on. I can tell you that NYS is worse than the feds. If you can't justify your numbers they will just assess you whatever they think a business like yours should have collected plus penalties and interest. Then it's up to you and your CPA to prove them wrong. And they can go back seven years or even more.

A number of years ago I got a letter from the Connecticut DRS. I'm across the boarder in NY and I had a customer who had a location in CT which I rarely had to go to. What happened was apparently that company was audited and the auditors came across an invoice from me that didn't include sales tax. (See how they get you?) So now they are on to me and I not only had to register to collect CT tax and file every January, I had to go back six years. Unlike draconian NY, they only wanted me to pay the taxes I didn't collect and didn't assess interest or penalties. Fortunately that amounted to the tax on only a few minor service calls.

According to the wording of my invoices, everything I do is a capital improvement. Yeah, well I don't think that's good enough. Can you truthfully say that all you do or have ever done is new construction? All they have to do is look at your invoices to see what you have done and if anything looks like repair or service work (or is unclear) they're going to say you should have collected the tax on it. And if something really is a Capital Improvement you better be able to provide a properly filled out and signed Certificate of Capital Improvement for EVERY job.

Really, why would you not want to collect sales tax? If you have a certificate of authority and a tax ID you are required by law to do so. Any bookkeeping system like Quickbooks does a good job of tracking your sales tax. You remit quarterly so if you have a sizable amount of tax collected, you can even use that money until it's due. And they even pay you a percentage for being a tax collector.

Let me tell you, NYS is hurting for money. I wouldn't mess with them. But unfortunately like my friend, if you start collecting now after all those years you could be opening a can of worms.

-Hal

 

[Dennis Alwon]

Quickbooks does all the separation so why pay tax twice ?

 

[electrofelon]

According to the wording of my invoices, everything I do is a capital improvement. Yeah, well I don't think that's good enough. Can you truthfully say that all you do or have ever done is new construction?

Actually pretty much yes. I cant remember the last time I did something that wasnt a capital improvement. I dont actually work that much in NYS, most of my work is in the Seattle area.