You may want to look into this a bit more. You're throwing away money, but it might only be pennies, and the cost of keeping track of things might be more than the savings.
All sales tax is use tax. That is, whoever ends up using it pays the sales tax. I buy components and wire for resale, meaning that I do not pay tax on it. If I keep it, I am considered the one who uses it, so I'm the final purchaser and I pay the sales tax. If I sell it to someone else, no matter how large or small the profit, I charge tax on the total price and collect tax from my client... who, you see, is the user. I've got a cert and an account to deal with paying these taxes.
This can be made more complicated if you want to spend the time to track it. When I buy nuts and bolts from Home Depot, I pay sales tax on it. But I could not purchase it without paying sales tax unless I tracked and accounted for every item, as I said; it's easier and cheaper in the long run to pay tax on nuts and bolts, then charge some sum to the customer for hardware that's not detailed out in the invoice.
And if you keep track of every nut and bolt that you buy and sell, and if the vendor makes you pay sales tax, you can fill out a form and get reimbursed by the state for the sales tax you paid before you resold the items and collected sales tax on them. This is quite a project.
Going back to more clear cases:
On June 30, 2014 at 15:29, Mr. Brad said...
Different lines on our estimate can be taxed or exempt. Individual material lines are always taxed. Individual lines labor (installation, programming, design, etc.) are always "non-tax". That is the easy part.
True.
Labor that includes materials, such as a speaker prewire, is typically not taxed. If the material is a relatively small portion of the total cost, than the line is "non-taxed".
You're mixing material and labor here, and material, at least, must be taxed. I'd say that if you mix those things into one charge, the total charge should be taxed. Someone's gotta pay sales tax on the five bucks of wire that it took you three hours to install and if you don't call it out, the whole thing should be taxed. (This is my opinion.)
We pay sales tax on the item when we purchase the material. It becomes a "use" items and we pay a use sales tax on the cost of the item. The customer is then not responsible for additional sales tax.
Not true. Use tax might be different in your state, but here in CA, what you just described is wrong. You should not be (maybe legally should not be; I'm not sure) just giving away, unnoted, such items; if you note them on the invoice you're supposed to charge sales tax for them.
More complex items that include labor and significant material costs are created as groups. Each items is individually added to an items that is made up of more than one item from our list. This way, the material content keeps its sales tax code, but the labor porting remains non-taxable.
This is the model you should use for small quantities of parts, too, especially since you already have a working method of doing it.
QuickBooks does all the tax calculations behind the scenes and keeps us compliant with the DOR.
Not if you don't write it up correctly.
Sales tax liability is a huge issue with our industry, and many dealers don't collect or report properly. This can create a larger liability for a company. The worst thing you can do is collect sales tax and not pay it to the tax board. Heaven forbid you use to pay your business expenses or your self. I have seen case were people go to jail......
If you make a mistake and collect too much, you have to pay what you collected. If you make a mistake and collected too little, you have to pay what you owe. The house always wins.
Don't pay tax to your distributor and think you are clear on large items. If you sell them for a profit, then you owe the sales tax on the profit. Try collecting and keeping that straight.
No, you don't owe sales tax on the profit. You owe sales tax on the total price.
Imagine this: tax folks ask why you charged $100 worth of tax on a $500 item. You say you paid $400 for it. They say "but the tax rate on an invoice is X percent of the selling price." You say "but I already paid tax on most of it." They say "yes, and here's the cumbersome form for getting that back to us."
When you buy any item anywhere, do you EVER get a receipt that shows tax on only part of the price?
DO NOT sell items and charge on only the profit. It is not proper. It gives any client with a calculator and a tax rate a clear picture of your profit margin. It tells your clients that you're not serious enough about this thing called "business" to understand how to do sales tax.
Good luck.
Indeed.
