Maryland Sales Tax Clarification

[MrUnknown]

So, I was a bit confused about collecting sales tax from my clients on items I purchase at retail and sell them and decided to contact the Comptroller of Maryland about it. It took a month to get a response, but it is useful and I figured I should share it with anyone on here that may be in Maryland if they don't know or understand the laws regarding it.

My Email:

I have a question regarding how to properly charge sales tax to my customers. I repair computers for my clients and charge sales tax on the hardware used in the repair. I normally get items from a distributor, add a markup, charge the client for this price and collect sales tax for the state on that amount. Sometimes I am required to purchase something at retail and pay sales tax on it already. I am unable to find the rules for this particular situation on the Comptroller website. Let?s say I buy something for $50 and pay $3 in sales tax. If I resell it to my customer for $100, do I collect $6 in sales tax or only $3? Or do I collect $6 and somehow at tax time this difference is figured out?

Any guidance would be appreciated.

Their response:

Thank you for your question.

You are correctly taxing the materials used in the repairs and you may get a refund for taxes paid on line 9 of your sales tax return or file refund form st 212 or st 205.

Additional support is found in the web addresses, below.
http://business.marylandtaxes.com/news/taxtips/business/bustip01.asp

http://business.marylandtaxes.com/news/taxtips/business/bustip07.asp

Are charges for repairs to personal property subject to sales and use tax?

Lump-sum charges to repair personal property are exempt. Charges for parts installed on repaired items are taxable if repair labor and parts charges are separately stated. Parts sold over-the-counter are taxed.
http://www.dsd.state.md.us/comar/comarhtml/03/03.06.01.03.htm

B. Persons engaged in repairing tangible personal property of others for a consideration may handle the sales and use tax on their transactions in either of the following ways:

(1) If separate charges are made for materials incorporated in the property being repaired, the tax shall be applied to the charges for the materials. The resale exclusion may be claimed on purchases of materials transferred to customers under these circumstances.

(2) If separate charges are not made for materials incorporated in the property being repaired, that is, the repair is charged for on a lump-sum basis, the tax may not apply to any portion of the charge to the customer. The resale exclusion may not be claimed on purchases of materials transferred to customers under these circumstances. A person making a repair of tangible personal property who charges for the repair on a lump-sum basis shall pay the tax on purchases of materials used in performing the repair. The taxability of purchases for lump-sum contracts is not affected by the fact that the person for whom the repair work is performed would not have been required to pay the tax on a separately stated charge for materials.

Basically, if you pay sales-tax on anything for a repair, it is a write-off at the end of the year.

If you list charges separately on your invoice for parts and labor, you must collect sales tax on the items you sell, not labor (computer repair is sales-tax exempt in Maryland). If you paid retail and taxes on the item, you still charge and collect the full sales tax for that item.

If you invoice a single charge, lets say $100 for a HDD replacement, you do not have to collect sales taxes for the cost of the HDD but you are required to pay that sales tax on what you purchased. I assume this is also for items purchased online, tax-free, as Maryland requires you to pay sales tax on items you bring into the state. They can't track it and so they can't really enforce it ("Did you get that dishwasher in Delaware and pay Maryland sales tax on it?") but I believe most states have this rule.

To be safe, I am going to keep doing what I have been, separating the charges on my invoice and collecting the taxes on parts.

 

[Paul Rodgers]

Tax law is such a convoluted mess.

 

[glricht]

Tax law is such a convoluted mess.

You got that right.

The OP says that in Maryland, the labor for computer repair is sales tax exempt.

Whereas, here in Florida, it's more convoluted. If the invoice is ONLY labor, there's no sales tax. BUT if there's a taxable item on the invoice (e.g. a piece of hardware), then we have to charge sales tax on the entire invoice -- both the hardware AND the labor!

 

[Ccomp5950]

Here in Texas you have to charge sales tax on all computer services.

ISP's don't charge sales tax on the first $25 dollars of the invoice though.

 

[MrUnknown]

Whereas, here in Florida, it's more convoluted. If the invoice is ONLY labor, there's no sales tax. BUT if there's a taxable item on the invoice (e.g. a piece of hardware), then we have to charge sales tax on the entire invoice -- both the hardware AND the labor!

I have heard that about here and I was thinking that it is the same way in Maryland (if I don't have to charge my customers sales tax, then I am not going to) but that part about me being responsible for the taxes I don't like. lol.

I mean, it could be that if I buy it online and pay no taxes, then I still don't owe any, but I don't want to risk it. I would rather stay in business than save my clients $3 that they know they have to pay.

 

[ljtechservices]

Basically, if you pay sales-tax on anything for a repair, it is a write-off at the end of the year.

According to my accountant this is how it works in Illinois as well.
Collect the full amount of tax on the sale, write of any sales tax paid on re-sell items.

sometimes I forget to keep a separate line item on my PO's for sales tax paid at purchase. i've probably lost about $100 in the last few years because of this.

 

[pceinc]

You can bet we haven't heard the last of "them" trying to amend the law to make most services taxable in MD. It was almost done this past year. It's just a matter of time.

 

[MrUnknown]

You can bet we haven't heard the last of "them" trying to amend the law to make most services taxable in MD. It was almost done this past year. It's just a matter of time.

Yeah I know.

When I registered by business one of the newsletter things they sent me was talking about how the General Assembly revoked the law that taxed computer repair. I knew they wouldn't leave it alone. I hate that our rate is now 6%. =\

 

[1aComputerServices]

Yeah I know.

When I registered by business one of the newsletter things they sent me was talking about how the General Assembly revoked the law that taxed computer repair. I knew they wouldn't leave it alone. I hate that our rate is now 6%. =\

Heard that, hopefully the tech services tax remains dead in this state.

 

[pceinc]

Heard that, hopefully the tech services tax remains dead in this state.

Friendsville, haven't been there in a few years. Used to visit a few times a month when I was kayaking the Upper Yough and on my way to paddle in WV.

 

[Jory]

You got that right.

The OP says that in Maryland, the labor for computer repair is sales tax exempt.

Whereas, here in Florida, it's more convoluted. If the invoice is ONLY labor, there's no sales tax. BUT if there's a taxable item on the invoice (e.g. a piece of hardware), then we have to charge sales tax on the entire invoice -- both the hardware AND the labor!

There isn't some legitimate way you could separate them even if that means doing separate invoices?

 

[glricht]

There isn't some legitimate way you could separate them even if that means doing separate invoices?

The Q&A's of Florida's revenue web site specifically mentions that sales tax is due even if the taxable and non-taxable items are split onto separate invoices.

Even if I figured some shady way around it, eventually the state would find out and I'd be subject to an audit. The fines, back-taxes and probably years of accrued interest would probably put me out of business!

p.s. I've been involved in audits before and believe me, it's not something I'd wish even on a competitor!