Sales Tax: Tax Exempt

Discussion in 'Business Operations' started by jbell36, Feb 1, 2012.

  1. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,267

    can anyone explain to me what the advantage of being tax exempt is as opposed to just paying the tax up front?

    tax exempt means you don't pay tax up front when you buy the product from your supplier then you pass that on to the customer who is the "end user" who THEN has to pay sales tax on the product

    to be tax exempt, correct me if i'm wrong, you have to pay very close attention on what customer is getting how much of the product you purchased...for example, if you buy 1 cubic yard of mulch and you use some of it on one customer and the rest on another, you have to keep track of how much is used where so you can tack that sales tax on to make it come out right on the bill...then you have to separate that out and itemize your bill stating how much you used on their yard, and if you are off they might start complaining bring up a problem. i know you still have to keep track of how much you are using on a customer it just seems a lot easier to say "we will lay mulch for $400" rather than "we used 3.73 cubic yards of mulch with a sales tax of $23.87 etc...

    this example might not be the best...i really hope this is not a dumb question and that i am over thinking this...
     
  2. wbw

    wbw LawnSite Fanatic
    Posts: 5,427

    The requirements vary from state to state. You don't have to break out the amount of mulch to charge tax on it. If you charge the customer X$ for mulch you should collect X$ + tax. You pay tax on your purchases for your business consumption like blades, filters etc.

    I should add that it is quite possible that the state will claim that you owe them tax on the entire job if you don't break out the amount of the mulch that you paid tax on already. In some state the labor is also taxable.
     
  3. Hoots

    Hoots LawnSite Senior Member
    from DFW
    Posts: 327

    Simple.

    Don't pay sales tax on goods that are re-sold to customers. If you pay sales tax at your original purchase, you'll have to separate your goods from your labor.

    In Texas we have to collect sales tax for labor and goods. Much easier to say $400 for mulch installation plus your applicable sales tax. $400 includes labor and materials instead of 2-3 line items for labor+goods+delivery.

    Make sense?
     
  4. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,267

    it's so hard to figure out because each state is so different, which i think is r3tarded...we don't tax on labor here for many services, actually the only one i can think of is chemical applications, and if you buy and install a tree on a COMMERCIAL property then i think you pay sales tax on labor and materials...i can't seem to get a straight answer from CPA's, i have asked 3 with mixed results which i couldn't believe...i finally called the kansas department of revenue and they answered a few questions but really wouldn't give me the time of day, they just kept telling me to go to their website which is very misleading...

    anyways, it seems like the IRS is making sales tax way too difficult...it just doesn't make sense to me...if they really want to collect sales tax then collect it at the retailer, that would make much more sense because it is much easier to track...for example, in our area the majority of the contractors go to one supplier...if everyone had to pay tax on the product at the time of purchase, then the sales tax is taken care of AND it is much easier for the IRS to collect from that ONE supplier than it is to all of the little landscape companies, who by the way may not be charging the sales tax on their customers and who will never get caught because they are such a small company

    it gets complicated because some services you only tax for the material, some you tax for material AND labor, some you don't tax for at all...it should be either all or none, and if you have to tax your customers then don't pay tax on the material up front...come to think of it, i think we paid tax on our chemicals for lawn treatments and turned around and charged a sales tax on the application as a whole, therefore paid double tax? hmmm, gotta get ahold of my accountant tomorrow, again...
     
    Last edited: Feb 1, 2012
  5. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,267

    that makes sense...then if you mark-up your price on mulch then it doesn't matter
     
  6. Hoots

    Hoots LawnSite Senior Member
    from DFW
    Posts: 327

    IRS doesn't deal in sales tax. It's all state to state.

    The reason they don't only collect sales tax at your retailer/wholesaler is because it's on wholesale prices which are obviously lower than retail. Even lower still than what you mark it up to.

    Wholesale: $50
    Retail: $75
    You may buy at wholesale ($50) and mark it up to $85-100

    The state wants to collect the highest rate possible so they want it on YOUR price.
    Posted via Mobile Device
     
  7. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,267

    makes sense...

    and good call, it's def not the IRS...that would be the kansas department of revenue

    thanks for the info hoots, you've already been more help than my accountant...
     
    Last edited: Feb 1, 2012
  8. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,267

    HOOTS,

    i do have a question for you...in texas do you have to pay sales tax at the time of purchase from the retailer AND collect sales tax from your customers or are you tax exempt at the time of purchase? sounds like a dumb question, just making sure i understand this...
     
  9. Hoots

    Hoots LawnSite Senior Member
    from DFW
    Posts: 327

    We are sales tax exempt for goods that will be resold. If I were to pay sales tax at my purchase and then collect from my customer then the state would get extra sales tax.

    We have a sales and use tax certificate through the state that allows us to buy goods for resale as tax exempt. Always collect sales tax on the highest rate the product is sold and collect it from the end user, your customer.

    If I'm not mistaken anyone that buys goods to resell should have a sales and use tax certificate. It's one of those necesssary evils like an EIN for payroll taxes.

    If you are not required to collect sales tax on labor, you might be able to charge the customer the same amount you paid for the goods, including tax, and not mark it up. That may not be as simple as it sounds because you would always have to break down your items on your invoices.

    Hopefully this makes sense too.
    Posted via Mobile Device
     
  10. stroker51

    stroker51 LawnSite Senior Member
    Posts: 819

    Call or text me if you are gonna be at your shop anytime soon and I can bring the guideline sheet for landscapers that we got from the kansas department of revenue by. It doesn't make it 100% clear but it helps. I have a feeling I might just know who you talked to that got you all confused...if it's who I'm thinking they are overly obsessed with the sales tax situation.
     

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