ElectricGirl

We have a new electrical contracting business. Some confusion on what we pay tax on and what customers pay tax on. Have gotten different answers from different sources. Am I correct that we pay sales tax on everything we buy but we do not list sales tax on the customer's bill? We just raise our markup to cover the cost of the tax we paid?

jw0445

I pay tax on my materials and just pass it on to the customer. I don't charge tax as a line item on the customer bill.

MDShunk

If you pay the tax when you buy it, you don't need to charge the customer sales tax or do your quarterly sales tax reports with the state.

If you don't pay the sales tax, you need to charge sales tax, do your quarterly sales tax thing with the state, and do annual inventory. Yuck.

__________________
One reason not to give DIY advice:
Catch a man a fish and you can sell it to him.
Teach a man to fish and you’ve ruined a good business opportunity.

ceb58

That is a question for your accountant. You do have one dont you? The laws on tax will differ state to state and a accountant should be able to set you on the right course.

ElectricGirl

Have accountant but don't think he has ever had an electrical contractor as a customer before.

MDShunk

Doesn't matter what your business is. If your accountant can't give you advice on the best way to handle your sales tax, you need a different accountant. I suspect very much that you either don't have an accountant or you didn't ask.

__________________
One reason not to give DIY advice:
Catch a man a fish and you can sell it to him.
Teach a man to fish and you’ve ruined a good business opportunity.

Mr Rewire

Contact a CPA if you dont have one and they will get you set up how you need . If you are going cheap and doing the this on nyour own then contact the Secretary of State and they will direct you to the proper agencies and any forms needed.
If you do work for a tax exempt organization you should be able to present thier tax letter to the supplier and not have to pay tax on material purchased for thier job.

Mr Rewire

Her accountant is over on Accountant Talk.com asking how to do this

ElectricGirl

He was on the phone talking to someone at the Department of Revenue getting an answer while he was working with me. The answer he got was a bit different than what someone told me when I called. But I think it is because the person I talked to was trying to explain the difference in if you are working for someone who is tax exempt. Confusing on what items to tax then based on permanent part of building or not. The biggest hassle for me is putting stuff into inventory via QuickBooks.

Why would you think I was telling you a lie?

ElectricGirl

That really would not surprise me at this point.

MDShunk

Because sales tax is a fairly fundamental part of doing business in PA. You need to get a new accountant ASAP if he/she is so obviously clueless on this one. Sales tax in PA is simple. Pay it when you buy it, or pay it quarterly when you sell it.

__________________
One reason not to give DIY advice:
Catch a man a fish and you can sell it to him.
Teach a man to fish and you’ve ruined a good business opportunity.

ElectricGirl

Do we only worry about what is a permanent part and what is not when we are dealing with a tax exempt customer?

MDShunk

Yup, which are going to be damned few customers. 99% of your electrical work for them will be permanent. I do so little work for tax exempt parties that I just pay sales tax on everything when I buy it so that I don't have to worry about who it might be getting sold to. They "pay me back" when I sell it to them at whatever price I decide to sell it at.

__________________
One reason not to give DIY advice:
Catch a man a fish and you can sell it to him.
Teach a man to fish and you’ve ruined a good business opportunity.

ElectricGirl

Okay. That isn't so bad. When I registered I signed up for a sales tax account. So I really won't need to use that, correct?

Mr Rewire

You should not need a sales tax number unless you plan on retailing material and collecting sales tax.

ElectricGirl

Already have it but guessing I don't need it. I think I should have taken an accounting course before opening our doors for business. Thought we would have a couple weeks before we started getting jobs but did 4 our first week in business.

Old Spark

Here in California, we have the option of going to the Franchise Tax Board and getting listed and having a tax number that allows us to pay no sales tax when we purchase our materials, then we add sales tax on our bill to the customer. Then we have to file and pay the taxes directly to the Franchise Tax board. Way to much paper work. Most of us just pay the sales tax when we purchase the materials and add it as cost of the materials when billing. You don't need to increase mark up because the tax is already included as a cost.
Old Spark

__________________
Old Spark

hardworkingstiff

You MUST get an accurate understanding of this or you could be hit hard later.

My understanding (disclaimer, I AM NOT an accountant) is if you sell materials as part of a total project then you pay the tax when you buy it and don't collect from the customer.

If you sell items separate from your installation then you must collect sales tax on the items you sell at the selling price and don't pay the tax when you buy the materials.

Trying to mix/match these two methods is a pain to deal with, so I would suggest you figure out which one is correct and stick with that one.

Someone I know was in the business building docks. They did the installation themselves and paid the taxes on materials when they purchased them. They started to sell the docks without installing them and did not charge sales tax on the docks, just kept paying the tax when they bought the materials.

This was caught during a state audit and it cost him over $140,000 to pay the taxes he was supposed to collect when he quit installing the docks.

__________________
asomatous
Lou

B4T

Here a repair is suppose to get sales tax added even if I pay sales tax when I buy the material..

New work is considered capitol improvement and no sales tax is added, but I still pay it on my end unless I get a "Capitol Improvement" certificate from the customer..

Sales tax sucks!!..

__________________
There comes a time when people who volunteer their service need to step back and see if it is better for them to retire. A red flag is when they become "cranky" and lose all sense of reality by making decisions that really don't make any sense..

Dnkldorf

I pay sales tax when I purchase materials.

Mark them up, and charge sales tax again, and file quarterly.

The state makes out, and I get left alone from the state.