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Sales tax question for Florida dealers
This thread has 12 replies. Displaying all posts.
Post 1 made on Saturday June 28, 2014 at 22:23
billbailey71
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I have asked local accountants and other friendly competitors and get mixed answers from both so thought I would broaden my search and see how other dealers are charging sales tax. I know if I go do a service call and it is labor only, I don't use any parts at all then there is no sales tax on labor. So the question is do you tax labor as part of an installation, such as prewiring a house? Some say if it becomes part of the house and can't be removed without causing damage, such as wiring in the walls or vac pipe then you don't charge tax on the equipment or labor, others say you charge tax only on the materials but not labor, but if it is an item such as a receiver that can be removed easily you definitely charge tax on the receiver but i'm still getting mixed answers on taxing the labor for installation. Any Florida installers want to tell me how they are charging tax? Thanks for any help.
Post 2 made on Saturday June 28, 2014 at 23:48
thecapnredfish
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We charge tax on everything unless invoice is labor only. Do not know if it is correct nor is it my responsibility as it is not my business. I have seen invoices from other trades such as HVAC and electricians. Labor was not taxed. Watch for the different tax rate for counties. If you deliver and bill on site they must pay the local tax. Example. Flagler has a tax rate of 7% or still was as of recently. Do not know how they get the extra money. We were kindly reminded by the state. Not related to your question but thought it was good info to pass on.
Post 3 made on Sunday June 29, 2014 at 01:45
3PedalMINI
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When in doubt charge and pay the state'
The Bitterness of Poor Quality is Remembered Long after the Sweetness of Price is Forgotten! - Benjamin Franklin
Post 4 made on Sunday June 29, 2014 at 02:48
Ernie Gilman
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See [Link: dor.myflorida.com]. It contains this:

Who Must Register to Collect Tax?
Before you open a business in Florida, you must find out if your business activity, product use, or consumption will be subject to Florida sales tax. Some government agencies require you to register with the Department of Revenue before they will issue a license.
Here are some activities that require the collection of sales tax or the payment of use tax:

The list following that will not copy and paste into this site or into Word! So you'll have to go look yourself.

I'd be on the phone with the Florida agency, not asking a bunch of bozos like us, because the pdf lists things that are completely not taxable here, for instance, in California. Here, all physical items are taxable, prepared foods, and some other things that were on the edge (for instance, years ago we learned we should have collected sales tax on tape recordings we made when the audio was mixed down, the tapes erased, and the tapes returned to us; we had to pay sales tax on the tapes though title never passed to our customers.) I don't know of any circumstance in which labor is taxable via sales tax, but the Florida document clearly implies that it is.

It's not best to collect and pay the state. If you are audited and you have collected tax for a category for which there is no tax, you may be forced to pay back the tax to the clients, but good luck getting the state to reimburse it to you. And of course the clients may separately sue for reimbursement if they read their invoices and realize you've made a mistake. (When I say "sue" here, I mean attempt to recover, not necessarily go to court.)


Who Must Register to Collect Tax?
Before you open a business in Florida, you must find out if your business activity, product use, or
consumption will be subject to Florida sales tax. Some government agencies require you to register
with the Department of Revenue before they will issue a license.
Here are some activities that require the collection of sales tax or the payment of use tax:
A good answer is easier with a clear question giving the make and model of everything.
"The biggest problem in communication is the illusion that it has taken place." -- G. “Bernie” Shaw
Post 5 made on Sunday June 29, 2014 at 08:33
24/7
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It is confusing. I spoke with another A/V company owner that has been in business 50 years. They charge tax on everything. Parts and labor. I follow their lead.

Post 6 made on Sunday June 29, 2014 at 11:04
Dawn Gordon Luks
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Here's how it works in Florida:

If you program a remote and there are no parts sold with the service, then you don't charge sales tax. If however, you add an emitter cable to the invoice, then you must charge sales tax for both the cable and the labor.
OP | Post 7 made on Sunday June 29, 2014 at 12:10
billbailey71
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Thanks for the info, so far I have been charging tax every time except when it is labor only, anything else on the invoice and the whole thing gets charged tax. What brought this up is a builder that I do work for gives his client a budget for everything involving the building process for the house, but has an agreement that any change orders he charges 10% on for his fee, so the builder has no problem with me showing the customer the estimates for what he wants to add. He added some central vac outlets, added items to the security system, added a surround system, 4 zones of audio and lighting control for 50% of the house, but then went off on the builder because I was charging tax for everything. I talked to the electrician that works for the builder and he only charges tax on materials never on labor and the builder thinks labor should never be taxed. I will go to that link and hopefully print something out to show the builder, thanks Ernie and everyone else for the replies.
Post 8 made on Sunday June 29, 2014 at 13:12
InHomeDemo
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They changed the law a few years ago. If there are any materials used in the job, the labor gets taxed. Extended warranties and service contracts are taxable also, so is security monitoring.
Post 9 made on Monday June 30, 2014 at 12:18
Ernie Gilman
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On June 29, 2014 at 13:12, InHomeDemo said...
They changed the law a few years ago. If there are any materials used in the job, the labor gets taxed. Extended warranties and service contracts are taxable also, so is security monitoring.

You need to be very explicit, then, about things. Per this, if you do $500 of remote control programming and find that you need to add an IR emitter, your $500 of programming becomes taxable. If you just give the emitter to the customer, you're not collecting or paying sales tax on it, and that's illegal. If you claim it under use tax, which is intended to collect tax on things you buy for retail but use yourself, that's fraud. I'm glad California separates labor from parts for taxing, and this is a clear example of why it's a good thing to do.


Bill, you bring up an interesting thing.

On June 29, 2014 at 12:10, billbailey71 said...
...a builder that I do work for gives his client a budget for everything... but... any change orders he charges 10% on for his fee... the customer... went off on the builder because I was charging tax for everything.

As I read this, the customer is being charged by the contractor for 10% of the stuff you supplied, but also 10% of the tax he has paid to you. I'm sure this is a detail that was not discussed because it was not noticed or not known when the customer and contractor made their agreement. And at first, I thought it was an issue. It's not -- the cost would be the same to the customer either way it was handled.

In California, and I presume many places, your invoices could and maybe should be different: they should be written to the contractor as resale, with no charge for tax; the contractor then adds his 10% and charges tax on the whole bundle. I say this because you stated that you work for the contractor, and because in CA, if parts are involved, tax must be collected on them. (A negative here in CA is that if you buy parts and then don't charge for them in an itemized manner [7 screws, drywall, 8x2"], then you have to pay sales tax for them when you purchase them!

Guessing at the tax rate, if your invoice was $100 plus 8% tax, you'd now charge the customer $108 and the contractor would charge $10.80, a total to the customer of $118.80. If you invoice the contractor for $100, he adds his 10%, bringing it to $110, then adds 8% tax, which is $8.80 for a total of $118.80. It's the same amount, but the customer now cannot say that the contractor charged him a percentage of the tax and that he was therefore taxed twice.

I can see the customer arguing that the contractor's 10% should be on the amount you charge before tax, and writing it up the second way stops that argument.

Also, all the rules I've read about here for Florida clearly imply that the contractor should be charging tax on his 10%, whether because everything gets taxed or because materials were used on the job, and you haven't said he's charging 10%. You guys really need to consult the taxing authority to get this worked out.
A good answer is easier with a clear question giving the make and model of everything.
"The biggest problem in communication is the illusion that it has taken place." -- G. “Bernie” Shaw
Post 10 made on Monday June 30, 2014 at 14:02
lippavisual
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I'm not sure about FL, but here in MA, we only charge sales tax on materials only. Labor charges are a separate line item.
Post 11 made on Monday June 30, 2014 at 15:29
Mr. Brad
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On June 29, 2014 at 01:45, 3PedalMINI said...
When in doubt charge and pay the state'

+1

I like that, but it should be a little more clear.

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.

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".

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.

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.

QuickBooks does all the tax calculations behind the scenes and keeps us compliant with the DOR.

Sales tax liability is a huge issue with our industry, and may dealers don't collect or report properly. This can create a lager liability for a company. The worse 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......

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.

Good luck.
Post 12 made on Monday June 30, 2014 at 15:31
InHomeDemo
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On June 30, 2014 at 12:18, Ernie Gilman said...
You need to be very explicit, then, about things. Per this, if you do $500 of remote control programming and find that you need to add an IR emitter, your $500 of programming becomes taxable. If you just give the emitter to the customer, you're not collecting or paying sales tax on it, and that's illegal. If you claim it under use tax, which is intended to collect tax on things you buy for retail but use yourself, that's fraud. I'm glad California separates labor from parts for taxing, and this is a clear example of why it's a good thing to do.

Bill, you bring up an interesting thing.

As I read this, the customer is being charged by the contractor for 10% of the stuff you supplied, but also 10% of the tax he has paid to you. I'm sure this is a detail that was not discussed because it was not noticed or not known when the customer and contractor made their agreement. And at first, I thought it was an issue. It's not -- the cost would be the same to the customer either way it was handled.

In California, and I presume many places, your invoices could and maybe should be different: they should be written to the contractor as resale, with no charge for tax; the contractor then adds his 10% and charges tax on the whole bundle. I say this because you stated that you work for the contractor, and because in CA, if parts are involved, tax must be collected on them. (A negative here in CA is that if you buy parts and then don't charge for them in an itemized manner [7 screws, drywall, 8x2"], then you have to pay sales tax for them when you purchase them!

Guessing at the tax rate, if your invoice was $100 plus 8% tax, you'd now charge the customer $108 and the contractor would charge $10.80, a total to the customer of $118.80. If you invoice the contractor for $100, he adds his 10%, bringing it to $110, then adds 8% tax, which is $8.80 for a total of $118.80. It's the same amount, but the customer now cannot say that the contractor charged him a percentage of the tax and that he was therefore taxed twice.

I can see the customer arguing that the contractor's 10% should be on the amount you charge before tax, and writing it up the second way stops that argument.

Also, all the rules I've read about here for Florida clearly imply that the contractor should be charging tax on his 10%, whether because everything gets taxed or because materials were used on the job, and you haven't said he's charging 10%. You guys really need to consult the taxing authority to get this worked out.

You are absolutely right on that. I was called in for an audit one time. I pay the sales tax on all most all the equipment I bring in. This covers me for a situation like giving away a free emitter. When I sell the equipment, I mark up the items to recoup the sales tax and pay taxes on the difference. I passed the audit just fine.
Post 13 made on Monday June 30, 2014 at 15:54
Ernie Gilman
Yes, That Ernie!
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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.
A good answer is easier with a clear question giving the make and model of everything.
"The biggest problem in communication is the illusion that it has taken place." -- G. “Bernie” Shaw


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