How much Sales Tax would you collect?

[Ramsey_ElWardani]

Here is some food for thought for all the Fab Shops and their customers.

Here is a simple example that should get you thinking about your potential liability to the State Board of Equalization.
A customer comes in to your shop and wants a cage put in his Ranger. To keep things simple, let’s just look at the basics of doing this $5,000.00 job and assume a Shop Labor Rate of $50.00 an hour and Sales Tax of 10 percent.

1) The labor involved in removing and replacing the interior components – (10 hours) $500.00.
2) Tube used in making the cage - $1,500.00.
3) The labor to fabricate the cage in the truck – (60 hours) $3,000.00.

What is the correct amount of Sales Tax to collect from the customer?


A) $500.00 – 10 percent of the whole job.
B) $150.00 – 10 percent of the materials (Tube).
C) $450.00 – 10 percent of the materials (Tube) and fabrication labor.

[y2kbaja]

Correct answer is B, sales tax does not apply to labor. Unless this is changing. B may not even be the correct answer either. Did the supplier you bought the tubing from tax you or did they sell it to you wholesale/tax exempt where you charge the tax? If they taxed you and you tax the customer it's double dipping.

[Ramsey_ElWardani]

Correct answer is B, sales tax does not apply to labor. Unless this is changing.B is not the right answer and nothing has changed. Let's see what others have to say.

B may not even be the correct answer either. Did the supplier you bought the tubing from tax you or did they sell it to you wholesale/tax exempt where you charge the tax? If they taxed you and you tax the customer it's double dipping.
$1,500.00 was the cost of the tube before tax. If you paid Sales Tax at the supplier you would still want to collect it back from the customer but you would not have to pay it to the State Board of Equalization.

[Ramsey_ElWardani]

Here is one for you. You win the Lottery and place an order with one of the popular Trophy Truck Builders for a $500K rocket. How much sales tax do you need to pay?

Something to think about: When you buy a Toyota, do you not pay sales tax on the labor to build it?

[Samco Fab]

Here in Nevada fabrication labor is taxable.

If you make something from nothing you pay tax on that item. Materials are also taxable.

The above mentioned Ranger cage is kind of a gray area, you might just be "reinforcing the roll structure" and not fabricating anything.

Repair or modification labor is not taxable. If you say make a gate, you pay tax. If you repair a gate, or modify a gate your labor is not taxable.

Replace gate with a Trophy Truck, you would pay tax on a new Trophy Truck:(

This could be a trick question, so I will not choose an answer, plus I live in a state that may have slightly different laws on this matter, so dont quote me.

[Ramsey_ElWardani]

Here in Nevada fabrication labor is taxable.

If you make something from nothing you pay tax on that item. Materials are also taxable.

The above mentioned Ranger cage is kind of a gray area, you might just be "reinforcing the roll structure" and not fabricating anything.

Repair or modification labor is not taxable. If you say make a gate, you pay tax. If you repair a gate, or modify a gate your labor is not taxable.

Replace gate with a Trophy Truck, you would pay tax on a new Trophy Truck:(

This could be a trick question, so I will not choose an answer, plus I live in a state that may have slightly different laws on this matter, so dont quote me.

No tricks here. From your post it looks like California and Nevada laws are the same "fabrication labor is taxable" and I would bet good money that neither State would go for the "reinforcing the roll structure" and not fabricating anything" argument. The risk to the fabricator is that the State Board makes you pay the tax even if you did not collect it. That is the exposure that many fabricators have if they get audited. Something to think/worry about.

[Kritter]

use cash...

[RWilliams]

use cash...

I agree but Uncle sam will get you eventually.

My family runs a commercial printing company and we charge tax on the total sale price no matter what the case because its way to much work to seperate everyjob and everytime you get audited(all the time) you must prove why or why not you did. Also any materials(for us paper, dies, coatings, for you tubing, welding supllies, metal) must be seperated out in our invoices showing why we didnt pay tax from our wholesaler and why our customer is paying it. In years past we didnt do this and they tried to make us paid tax on wholesale products. (Double Dipping)

My 3 cents

[woundedyak]

This looks like one for the driver of the #54 TT. I bet he deals with this all the time

[fatnbald]

c
in california at least

[Tech Tim]

Here in WA, the answer is D.

D) Tax the whole $5000.00 (but tax rate depends on where the product is picked up, shipped or delivered)

If the customer comes and picks it up, then you charge him your sales tax rate.

Where it gets sticky is if you ship it or deliver it in state you need to determine which of the 300+ different tax districts in this state said delivery took place, then charge them that particular tax rate, then report each one of those on your quarterly taxes and when the state sends each tax district their cut of that sale, be ready to answer back all the claims from those districts that since you are doing business in their town, city, district, you need to buy a business lisc. and pay B&O taxes too.


This takes effect this coming July. :rolleyes:

[RyanWiW]

Correct answer is B, sales tax does not apply to labor. Unless this is changing. B may not even be the correct answer either. Did the supplier you bought the tubing from tax you or did they sell it to you wholesale/tax exempt where you charge the tax? If they taxed you and you tax the customer it's double dipping.

Fabrication labor is taxable, repair labor is not.

[Superfab]

If you are creating a product from raw materials the end product is taxable. As stated before, repair is a different mattet. If you put "Bend roll bar " on an invoice you have created a product and it is taxable even if the customer supplied the tube. But if you write " Bend customer materials to spec " it's not considered a product. This comes from someone who has been audited before and won. Manufactured products are taxable to the end user as per the tax code.

[johnowhite]

The "Low Risk" answer is $450 tax, 1500 mat. and 3000 fab., at 10 per cent.

You are creating a roll cage from tubing by cutting, shaping and welding. No way around an audit and assessment for fabrication.

If it had a rolll cage and you replaced it back to substantially where it was, the material would be subject to sales tax, not the repair labor.

John

[Ramsey_ElWardani]

So now that everyone knows the answer is; C) $450.00 – 10 percent of the materials (Tube) and fabrication labor, is anybody paying full sales tax on their $300,000.00 to $750,000.00 Prerunner or Trophy Truck – a finished product? If not, what is the builder’s liability in an audit? Try HUGE!

[Msquared]

This must be why everybody in Cali is buying Geiser TT's out of AZ...:rolleyes:

[metal 1]

i used to own a driveline shop here in the desert when we build a complete new shaft the whole thing is taxed ,if we just replace a weld yoke end we only tax the part ,when a customer bought in a trans slip yoke for a new shaft still only taxed the parts used to build a shaft ,,,,,,jeff