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charging for taxes-option???

updated fri 10 mar 06


Sam or Mary Yancy on thu 9 mar 06

Many years ago - when I was painting/building custom cars and motorcycles (a legal business), I used to buy all materials and parts, equipment and paid the sales taxes on all when purchased. That was a option at the time - pay the sales taxes then and only charge labor (non-taxible) , or don't pay the sales taxes (as a business) and charge the customer for the materials (with sales taxes) but not tax the labor
Then when I did the work, I only charged for thenon-taxible labor, not the materials. I never charged any additional tax as labor is/was not taxible at the time.
This legally worked for me at the time and I was audited a couple of times. I did not cheat the gov - all income got a a triple receipt and was accounted for and reported for - cash, check and so on. Most of my customers paid by cash - and a few checks which NEVER bounced. Never did credit cards tho and paypall did not exist. Perhaps it will no longer work but????? Comments vrom you accountants - legal beagles??? It could work for pottery business perhaps.Sam in Daly City

Richard White on thu 9 mar 06

I will exchange the hat of my night "job" (bad attempts at pottery) for my
day job (CPA) and advise that it all depends on the tax laws of your state
(and at times, your local jurisdiction). In some places, sales of labor are
taxable, other places not (but if not, the labor has to be a separately
charged item on the bill). Some kinds of merchandise may or may not be
taxable (clothing and groceries are not taxed in some states). When a
product (or component thereof) is taxable, typically it is taxed to the end
consumer at the price the taxpayer (the end consumer) paid, not the
wholesale price paid by the seller. The seller, if certified for reselling,
does not pay any tax to the wholesaler (and the wholesaler will be required
to show proof that its customers were bonafide resellers before they will be
excused from collecting the sales tax). This usually includes raw materials
that are included in the final product. You buy a block of clay for $10 and
are registered as a retail merchant. You can show your resale certificate to
the clay supplier and pay no sales tax. You then make a pile of stuff that
ultimately sells for $100, you need to collect tax on the whole $100 selling
price. The reason for that is that the tax laws are usually written to
impose the tax on the end buyer and you, the seller, are merely an agent of
the state for collecting it at the point of sale. As a side comment, this is
what drives the issue of sales tax on internet/mail order purchases. Some
states have begun including a line on their income tax forms for the
taxpayers to voluntarily pay the sales tax they should have been charged for
purchases delivered from out of the state. At least one state has gone so
far as to charge a flat rate of taxable earned income based on their studies
of the average likely amount of out-of-state purchases and you have to
defend youself that you didn't buy anything...

There are times and places when a seller may choose to not explicitly
collect a sales tax separate from the merchandise price, but then the seller
must still remit to the taxing authority an amount that is equivalent to the
tax rate. For example, if the rate is 4% and I price my work at the craft
show in even dollars, tax included, because I don't want to fool around with
coins, that's OK on the sales floor, but so far as the tax man is concerned,
that $10.00 bowl was effectively $9.62 plus $.38 tax, send in the 38 cents,
please (or else...).

Hope this is useful