Question for US based Business

[Boston Pro Comp Serv LLC]

Alright so today I got a letter from the DOR. When I called the lady said I need to charge sales tax to customers when I replace parts. My accountant said that as long I pay tax on the item when I buy it, that I don't have to charge the customer tax, just charge them as a service. The accountant said it doesn't matter if I put the cost of the part in with the service charge as long as I just charge as a service.

Does anyone know who is right here?

Edit: I've been doing business this way for many years and have never heard a word from the DOR about it until now. I am thinking it's because I just filed as an LLC recently, as before I just filed as myself.

Edit #2: I should have mentioned I'm in MA

 

[YeOldeStonecat]

It has gotten tricky.
State of CT
Selling tangibles....6.35%
Remote work where all we use is our brain, eyes, keyboard, mouse...(you know, remote work)...1%
Labor...anything where we use our hands and tools...such as replacing parts (hard drive swaps, power supply swaps, memory installs, using a screwdriver or wrench)...6.35%.

So, starting a few months ago...we have to track, and define...our "labor" into those last 2 categories.

 

[nesrinamb]

Go with what the accountant is saying, unless the law has changed. In California we don't charge tax on repairs because repair work isn't taxed but everything else is.

 

[altrenda]

Yeah, California doesn't tax brainpower, yet. Or repair work. But labor associated with a sale is taxable. if you sell a computer and charge for data transfer, then the transfer charge is taxable. But, if they take it home and bring it back to transfer data, it's not taxable.

 

[Porthos]

Charges for personal or professional services:
Accounting, insurance, legal and medical services, as well as services such as haircuts and car repairs are not taxable. Please note: Items sold in addition to services, such as a bottle of shampoo from a salon or parts for a car repair, are taxable and must be itemized separately on the bill. Massachusetts tax law treats some products as services and therefore exempts them from the sales tax. Other products, however, may combine taxable and nontaxable elements. Still other products, although labeled custom or a service, may not meet the legal definition for tax purposes.

Service providers who have questions about the taxability of their transactions should contact DOR's Rulings and Regulations Bureau for clear guidance on this issue by writing to: Department of Revenue, Rulings and Regulations Bureau, PO Box 9566, Boston, MA 02114-9566.


http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/salesuse-tax-guide.html

 

[mraikes]

Go with what the accountant is saying, unless the law has changed. In California we don't charge tax on repairs because repair work isn't taxed but everything else is.

If the OP is already getting letters directly from the DOR on this matter, ignoring them and just "going with what the account says" wouldn't be correct.

If the DOR thinks he's supposed to charge tax, then he needs to charge tax unless he can demonstrate an exemption based on the DOR's own rules.

You definitely don't want to mess around and get it wrong when you're on the radar of the tax authorities.

EDIT: And here in New Mexico we technically don't have a sales tax, but rather a "Gross Receipts" tax on both services and parts. A business isn't required to collect it, but they sure have to pay it. So it's usually just added to every transaction like sales tax is elsewhere.

 

[katz]

If the OP is already getting letters directly from the DOR on this matter, ignoring them and just "going with what the account says" wouldn't be correct.

If the DOR thinks he's supposed to charge tax, then he needs to charge tax unless he can demonstrate an exemption based on the DOR's own rules.

I agree, and also you may want to get an opinion from another accountant. I've come to the conclusion that half of these guys don't know their job. Either that, or the tax laws change so frequently that they can't keep on top of everything.

Bottom line is, if your accountant is wrong about this, you're the one who is responsible, not him.

 

[lsi]

I think you're discovering every state is different. Where I am I have to charge sales tax even for repairs. Services rendered to people (dentistry, tax preparation, etc) is not taxable but services rendered to property (car repair, carpet cleaning, computer repair) are all taxable services.

In our state you can file for a line item ruling from the DOR which is a definitive answer that you can reference later if you ever get in hot water. But you pretty much already know what they are going to say...

 

[Boston Pro Comp Serv LLC]

Yea I know, both accountants I've used in the last few years both say that I am within the law. As long as I pay the sales tax when I buy the item (as I do). From all that I gather if I was reselling the parts than I pay no tax when I purchase the item, and charge the customer tax when I sell it. That is what the DOR wants me to do. It's obviously less book work for me to pay the tax when I buy the part and then just charge the whole repair as a service. The way I see it they are still getting thier money, and I am still paying the tax. The only difference is I am paying the tax direct to the DOR upon collection, instead of to another business who then pays them.

The thing that's pissing me off is they want me to pay them tax on all the parts I bought in 2012, even though I already paid tax on them.

 

[lsi]

so I am assuming you are not marking up parts at all? maybe you can claim them as reimbursed expenses then.

 

[nlinecomputers]

Go with what the accountant is saying, unless the law has changed. In California we don't charge tax on repairs because repair work isn't taxed but everything else is.

Go with what the state is saying. They are the ones that can fine or jail your butt if you don't comply. I cannot say about your state. Here in Texas what you are doing is illegal. It is the responsibility of a retailer to collect sales tax. It is against the law to resell items on a regular business as a action of business without a sales tax permit. If you are enough a business to have a LLC then you dang well should be licensed and collect tax. That is how the government will see it.

 

[PCX]

My suggestion is to fill out any tax exempt forms that you need for any company you buy parts from. You can even do this for Best Buy if you need to. This way, you can buy parts without paying taxes, then mark up and resell your parts and charge the tax to your customers.

 

[Rosco]

Yea I know, both accountants I've used in the last few years both say that I am within the law. As long as I pay the sales tax when I buy the item (as I do). From all that I gather if I was reselling the parts than I pay no tax when I purchase the item, and charge the customer tax when I sell it. That is what the DOR wants me to do. It's obviously less book work for me to pay the tax when I buy the part and then just charge the whole repair as a service. The way I see it they are still getting thier money, and I am still paying the tax. The only difference is I am paying the tax direct to the DOR upon collection, instead of to another business who then pays them.

The thing that's pissing me off is they want me to pay them tax on all the parts I bought in 2012, even though I already paid tax on them.

I am from Mass this is what i do. My tax guy said the same thing if i paid the tax on the part that is all that is needed. I need to give a call on monday just to make sure i am ok

it almost seems like they want you to pay twice. If you save your receipts it should prove it.

 

[Rosco]

My suggestion is to fill out any tax exempt forms that you need for any company you buy parts from. You can even do this for Best Buy if you need to. This way, you can buy parts without paying taxes, then mark up and resell your parts and charge the tax to your customers.

i guess i am going to have to look into this... thanks this is a great topic!

 

[nlinecomputers]

Texas will still demand the tax from you. If you didn't get exemptions like you are supposed to do that isn't Texas' problem. You still owe the tax and penalties and interest. Can't believe that Mass. would function any differently. Most states are pretty Zealous when it come to their tax revenues. Your CPAs are idiots. Ask a Tax attorney. Bet you get a different answer.

 

[Boston Pro Comp Serv LLC]

I may very well have to do what you say PCX but you're right I don't mark up and I already paid tax on the item when I bought it. The whole bill is service only no parts, not itemized.

 

[SprinterTech-WI]

Here in wisconsin if we pay tax we file for overpayment then charge the customer tax.
Here if you did what the op says they'd be breathing down your throat

 

[ICEinLAVA]

Tax

I have looked into this a few time in CA, and have determined that Sales Tax and Use Tax should be paid any time a tangable item is changed hands.

For example, if you go down to the store and purchase a part (and pay sales tax on the item) and then sell the item to the client, you are to collect the tax for the client or the client will have to claim the tax and pay it to the state.

You could have the client purchase the item, either by going with you to the store or online. That way they pay the tax on the item and they get the warranty that goes with the item.

Or you could get a resellers permit that would allow you to purchase items without paying tax, for resell. And then you charge the client tax and pay the tax to the state.

I don't know if your counties has different tax rates, but if i sell an item in my county, the tax rate is 7.75%. but if i sell and item to a client and delivery the item to them in another county (Los Angeles County for example), i have to charge them LA county tax rate of 8.75%

 

[glricht]

As has been mentioned before, each state has it's own rules and regardless of what any accountant might say, you need to do what the DOR says else risk real problems down the road.

In Florida, there's no sales tax if the invoice is only services. But you have to charge sales tax on parts and the tax is based on your selling price, not on what you paid for it.

What's crazy is that if the invoice has BOTH services AND parts, then the sales tax must be calculated on the ENTIRE invoice amount, not just the parts. I asked them about writing two invoices, one for services and one for parts and then charging sales tax on only the parts invoice. But the DOR rules specifically state that this is not allowed. Geez.

 

[Freedom PC Solutions]

As has been mentioned before, each state has it's own rules and regardless of what any accountant might say, you need to do what the DOR says else risk real problems down the road.

In Florida, there's no sales tax if the invoice is only services. But you have to charge sales tax on parts and the tax is based on your selling price, not on what you paid for it.

What's crazy is that if the invoice has BOTH services AND parts, then the sales tax must be calculated on the ENTIRE invoice amount, not just the parts. I asked them about writing two invoices, one for services and one for parts and then charging sales tax on only the parts invoice. But the DOR rules specifically state that this is not allowed. Geez.

That sounds like corruption and greed to me. They get you coming and going. I will have to check on that here in Michigan. As far as I know we charge sales tax only on the physical item. We have to calculate shipping based on the total price including shipping and handling which I think is crap as well.

EDIT: If we buy an item, pay the sales tax and then give it to the client we have to charge sales tax even though we already paid it. Even if we are giving away something free of charge we have to charge tax. They told me that if a tangible item leaves my hands, I have to charge. Still can't figure out how to charge .06% on zero dollars.