View Full Version : Subs & sales tax
03-10-2001, 06:33 PM
When you sub out jobs, how does the whole sales tax thing work?
03-10-2001, 06:51 PM
I know how it works with snowplow subs in New Jersey.... I presume that landscape subs work the same way....
The subcontractor does not charge YOU sales tax as you will charge your customer sales tax and remit that to the state. However, you have to give your sub a form that states that you will collect and pay the required sales tax, which then relieves the sub from having to charge you the tax (and also gets him off the hook if he gets audited). I don't know the name of the form in New Jersey right off hand - however we do work in New Jersey and that's how I know the routine.
Some of the other fellows from NJ can confirm this too.
03-10-2001, 07:37 PM
John had it right. If you sub tries to charge you tax then you must give them a ST-3 resale form. You as the contractor charge sales tax to the customer, Not the subs.
03-10-2001, 08:02 PM
I couldn't remember the number of the form.
Just adding a little to what Ron said. Even if your sub doesn't try to charge the sales tax, you give them the ST-3 for their files (sounded kinda like you were saying only give them one if they try to charge the taxes). Then if the sub gets audited the ST-3 says you were taking care of the taxes. NJ doesn't care who is collecting the taxes, as long as some Certified Agent is collecting & forwarding it to them. Also, technically the sub can charge the sales tax on their portion of the bill. You would then charge the customer the full tax due, however you would only send NJ the tax due on the remainder of the bill not covered by the sub's portion, because the sub is already sending the rest. Sounds confusing, and this is why the more common practice is for the general contractor to collect & forward to NJ all of the taxes, as the original answers to this thread conveyed.
03-11-2001, 01:24 AM
What about this? If you are doing a full service account which is based on a set monthly price that includes everything in that one price,(which by Indiana sales tax code requires no sales tax charge) then you do not charge the customer sales tax, even if you are using a sub for the apps.
Now the sub can charge you sales tax because he is doing one service and providing you with the product for which is taxed, which should satisfy the sales tax code. You just need to figure the sales tax in on your price so you can recuop it, and not just be paying someone elses sales tax.
Is this right guys? I realize so far all the posts and the thread starter are from NJ, but does this sound like others states?
[Edited by Skookum on 03-11-2001 at 05:28 AM]
03-11-2001, 07:55 AM
Feels like I need some sleep, cause I couldn't follow that one Skookum....
Each state has its own laws, so hopefully someone from Indiana will chime in. If not, I'd check with the accountant, because it sounds to me like you're getting into the sticky area of double jeopardy taxation, and we certainly don't want to send any of our states more than the taxes due ;)
03-11-2001, 05:06 PM
OK, I was told by state sales tax office that as a example: you are doing a job, let's say installing a new seeded lawn. You have two ways to charge for that job; Materials plus labor, or one price for the entire completed job. You only charge sales tax on materials and not on labor or on a service. So, you would charge sales tax on the materials only if charging Materials + Labor (Like a automotive repair bill). You charge NO sales tax if you charge a one full price since that price included the materials in the price you gave.
So, you gave a price to seed a yard at materials plus a hourly labor rate and it came to $300.00 materials and $500.00 labor in which you could bill the customer at those rates but you would add sales tax to the materials only, So at 5% taxm, the bill would be a total of $815.00. In this way, you would want to get a tax exempt number so you do not pay sales tax on materials you purchased since you were reselling them and thus you charge the sales tax to the end user for the state.
Now, if you seeded a yard and gave a price of $800.00 to do the job complete, then there is no sales tax on the service. In this way, you should pay sales tax on the materials since you are the end user. Thus, you would want to figure your sales tax ahead and include it in the qoute or bid. Otherwise, you would lose a few dollars more the further your estimate is off on materials.
In apps and maintenance contracts this works as thus. Say you have an account that you charge $700 a month to mow and trim and also $100 a month to do the lawn apps. So, you would charge sales tax on the $100 app at 5%. The total monthly bill would be $805.00
A monthly maintenance contract might include mowing, trimming, and lawn apps for $800.00 per month. In that one price, you are including materials in your service. You do not charge sales tax on your monthly bill since it is a service. The bill would be $800.00 per month.
Now, according to the state sales tax office, I was told that you do not claim the pesticide app as a service even though you are not selling $100.00 worth of a material or product. The entire amount you charge is taxed. They consider the entire amount as a product not a service. Does not seem right to me, but that is what I was told. I think it must have been decided to be TOO HARD to be accurate and too hard to figure and charge tax for just materials delivered and sold along with labor.
Is this better explaining? And does this sound like what most of you do also?
As for the sub issue, it is looked at like a material if you are the end user in a one complete price setup like a monthly service price. You should pay the sub his total bill plus the sales tax he charges. Say you charge your client $800 a month. Your sub charges you $105.00 which included the 5% tax on a $100.00 app. You need to figure in the tax in your monthly price to recoup it and not take away from your profit on the $800.00 bill.
If you are charging $700.00 a month to mow an account and $100.00 a month for the lawn apps that are being done by the sub at $100.00 a app to you, then you would want to be tax exempt with your sub on that account, so that you would then charge the account sales tax on the apps since they are the end user. The bill would be $805.00. Of course this example shows no mark up on the sub's bill.
Does this sound better? You doing it that way or not? Or do I still have everone LOST?
03-11-2001, 05:36 PM
Thanks for the help guys.
Well Skookum, I don't know why, but I did read your post and it sounds like you explained it clearly. However, like I already said, each state has its own laws, so it doesn't matter to you how we in NJ are dealing with the examples you present. Hopefully one of your Indy neighbors will chime in. The first 3 paragraphs you wrote are the same as here IF the newly seeded lawn is a Capital Improvement to Real Property. The only exception is in NJ, services are taxible.
03-12-2001, 02:46 AM
Would'nt it be nice if we all (States) were on the same page. Life would be so much easier for us all in business!
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