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Sales Tax: Tax Exempt

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jbell36

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Discussion starter · #1 ·
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 ·
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 ·
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?
 
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Discussion starter · #4 · (Edited)
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...
 
Discussion starter · #5 ·
wbw said:
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.
Click to expand...
that makes sense...then if you mark-up your price on mulch then it doesn't matter
 
#6 ·
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.
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Discussion starter · #8 ·
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 ·
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.
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#10 ·
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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#11 ·
I only found one page of the deal, but i will run a copy and have it in my pickup if you wanna see it. I will try to find the rest of it for you too.
 
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#13 ·
That happened to more than one company in town last summer. Also any used equipment you buy from an individual and therefore don't pay sales tax you also have to report and pay the sales tax on. Seems obvious but I got hit pretty good with that last year, just overlooked having to do it.
 
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#14 ·
they sure made it more confusing didnt they fellow kansans!!!! sup fellas, looks like we will be starting sooner than normal huh?
 
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#15 ·
So normally I have just paid sales tax on my mulch and then charged customer a total for the job and charged them sales tax. Same with fertilizer, I just pay it with tax when I buy it. Should I be doing this differently?
 
Discussion starter · #16 ·
mkarps said:
So normally I have just paid sales tax on my mulch and then charged customer a total for the job and charged them sales tax. Same with fertilizer, I just pay it with tax when I buy it. Should I be doing this differently?
Click to expand...
if you don't know then probably...each state is different...talking to an accountant would be your best bet, you can also find the info online if you google sales tax for your state, there should be a chart that tells you...as for your mulch, some states make you pay up front as if you are the end user, some make you charge the customer which technically IS the end user...the reason for this is because contractor's can up charge their mulch prices from the supplier...so instead of paying sales tax on only $32.13/cubic yard from the supplier you up charge your customers and charge them $42.13/cubic yard...when sales tax is tacked on the state will make more off of you (the contractor) than the supplier...my state does not do this
 
#18 ·
Well in Jersey, we pay sales tax on all materials we use in landscape (unless its for a tax-exempt organization, then we have to supply a valid ST-3 tax exempt form to the vendor) and we then charge sales tax for the job (unless materials is denoted as a separate line item from labor). THe catch here however is if you purchase something for $5 & pay $5.35 after sales tax, then list on invoice as $8, plus labor $10 and collect tax on the $10, you know the state wants to see the tax on the mark-up, so I and most others clollect tax on $18 + submit it all on the 20th of the following month (whether or not we have been paid by the client).

Thats the Jersey way!!!

On top of that, all landscapers who do jobs for homeowners over $500 have to have a Home Improvement contractor license or be fined up to $10K
All certified pesticide operators must now also get a NJ Pesticide license as well
 
#19 ·
Where it gets annoying is items to be used for the business are taxed like my new truck or any mowers even servicing the equipment is taxed. But all my mulch, topsoil, grass seed, fert, pesticides, plants trees, even dumping, is tax exempt. But when we get paid they take their cut and at 6.35% in ct it doesn't take long to hit 2000 a month. Personally I think they ought to allow the assets for a business to be tax exempt as well when your trying to create jobs this keeps the money in the hands of the job creators.
 
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