How does one deal with sales tax on supplies that go into products sold? I have been buying supplies for my clients and getting reimbursed, and then charging only for my labor. I figure sales tax gets paid on everything once, and everyone should be happy. Is this an acceptable method?
Is it possible to avoid paying sales tax on supplies, and then charge sales tax on the entire project? The net result is the same. If so, how does one get a tax exempt certificate?. (I have two for various non-profits I work with, but I suppose I should have one of my own.)
Call your state dept of revenue on this. They will be happy to answer your question. You will need to register with the state to collect sales tax. You can probably only avoid sales tax on lumber and such going into a specific project. General shop supplies like sandpaper and such you will probably have to pay tax on.
In general, if you are creating a piece of furniture, you will need to charge sales tax on the selling price of the furniture.
I ran a small business and 99% of what I sold didn't require sales tax so I never collected sales tax on anything. I also never paid use tax on mail order purchases. I ended up paying $7,000 in sales/use tax going back 5 years. No penalty as I cooperated and actually did a self audit.
Been awhile but you may not want that tax exempt certificate. As I recall, we had to file a quarterly sales tax report and it was a pain at that time (10 years ago). May just want to pay the tax on the materials and pass that on in the cost of the project and avoid the freakin hassle with NYS.
Yes, this is acceptable. But I believe you need to get a Certificate of Authority from the state to collect sales tax for the labor portion.
This may be helpful. (Sales tax info is on page 18.)
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Is it possible to avoid paying sales tax on supplies, and then charge sales
You do not get a "tax exempt certificate" as you are not tax exempt. When you purchase the materials you indicate to the seller that you are purchasing them for resale. They will ask that you complete a resale certificate for their files and will not collect (sales tax is collected, not charged) the sales tax. Here is a copy of a NYS Resale Certificate.
This is in Texas but NY may not be that different.
For supplies that go in to a project such as varnish, stain, screws, I do not pay sales tax so long as it is for furniture. In Texas, The whole piece of furniture is taxable. The price you sell the piece for is taxable regardless of how much is parts and or labor. You do not have to pay sales tax on the materials for this purpose. WORDING on your invoice is very important. In Texas the sales tax laws differ greatly.
My suggestion is to call the local NY State Comptrollers Office and ask when they are the least busy. Go to that office and get set up legimately and describe what kind of business you plan on doing and exactly what you will be selling. They can tell you exactly what to pay tax on and what to charge tax on.
In Texas maybe. If the work is being done to a customers personal home/ property and cannot be removed with out also doing repairs the job is not taxable and I must pay sales tax when I pay materials. An example would be adding a wall, replacing an old fence, or adding built in cabinets.
If my work can be removed with out having to do repairs the job is taxable and I do not have to pay taxes on materials that go in to that job. Tools are taxable. Blades, drill bits and such that have a life expentancy of less that 6 months are not taxable to me when I buy them.
The net result is the same.
In Texas it is not. The sales tax on a piece of furniture that you sell would be greater than the sales tax on the materials that you bought.
If so, how does one
IIRC in Texas you must first be licensed to do business. Then go to the State Comptrollers Office and get your Sales Tax Permit.
You go to the local municiple offices and register as a small business (DBA) and obtain an tax number. For DBA's in NY, it's typically your SSAN. Armed with that, you can now purchase tax exempt and charge sales tax based on the final product, which you have to submit to NY on a quarterly basis. Don't be late - they are not a forgiving group of people.
None needed. The DBA route is a really easy route and it works well. Simple bookkeeping - no accountant needed, just keep records, collect tax and hand it over to the state.
Not so bad an ordeal Bob. The forms are really pretty simple and simple record keeping makes the forms a less than one hour effort every quarter. Having said that, there is a certain value in not providing NYS any more information about yourself than is absolutely necessary.
Going to add some emphasis to this very important point. ALso, ALWAYS send the return Certified Mail with a Return Receipt. Save your post office receipts too. You wouldn't be the first person who filed on time and was charged a late payment penalty. Happened a lot in one company I was working for.
"Armed with his tax certificate, his materials are all tax exempt. This includes materials like sandpaper, power tools, etc. "
All supplies related to the manufacturing process are tax exempt. But unless you are re-selling the power tools then you need to pay sales tax when you purchase those items.
You might just be right about that, but I seemed to recall that if they were used for the business that they were exempt. They did though, become assets. Are you certain about this?
Never paid tax on a machine or tool used directly in manufacturing. Tools for maintenance are taxable, as are computers, janitorial supplies. These are general state regulations, your state may vary.
Be sure to pay Use tax also. You will be audited at some point and they look for that sort of thing. Good record keeping is VERY important.
Use tax is what you pay when you buy a taxable item from out of state and the seller did not collect sales tax. Lets say you buy an answering machine from Amazon for $100. They will not charge you tax, but your home state wants their cut. You must voluntarily report and pay it. If not, if an auditor finds it you will pay the tax, plus possible interest and penalties. If you show a pattern of avoiding paying sales tax, they will be sure to audit you frequently. Yes, you have a state employee sitting in your office going over your records. Isn't being in business fun?
Here in Oregon, I don't pay sales tax on my supplies, tools or even my auto for that matter. I also am not required to send in sales taxes or file reports to the state. Then again, we have no sales tax.
Oh thank you dear Lord! It's so much easier to buy things, sell things, run a business, and live life without sales taxes. I lived in Arizona for almost 10 years and the sales tax department was like the Amish Gestapo. Some years they were all nice and friendly: "no, you do not have to pay sales tax on the film you use to shoot your professional jobs as long as you itemize, bill it to the client and collect the taxes for us." Other years they had specific business sectors all running around like scared little rabbits: "We're auditing all photographers, because there appears to be a trend of purchasing film used to shoot professional jobs under tax-exempt status. It makes no difference if the client is billed and taxed as the original film is no longer in the same form as when it was purchased - therefore the photographer is the end user." Audits, back taxes, interest and penalties.
It is soooo much easier to see a price of abucktwoninetynine, counting the change in yer pocket and forking over abucktwoninetynine.
Check with a local CPA or the tax authority. I usually find CPA's to be easier to deal with and sometimes more accurate than the folks answering the phone at the State DRS.
The rules can be slightly different for furniture vs. built-ins or finish carpentry, just as they can in regulatory issues. One is the often the installation of customer provided material (home improvement or construction), the other is sometimes called manufacturing (furniture and cabinets).
Ask a tax pro familiar with your locale. Some states require that collected sales tax be kept in a separate bank account.
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