Woodworking Business

You are not logged in. [ Login ] Why log in
(NOTE: Login is not required to post)

Calif Sales Tax Audit

3/11/16       
Slam Dunk

Has anyone been audited for Calif sales tax? How did it go, how detailed was it, how long did it take, did the auditor know what they were doing?

3/12/16       #2: Calif Sales Tax Audit ...
Pat Gilbert

It's routine. It does not take long, IIRC.

They seem competent to me.

They will probably want to see what percentage of a job is installation and if you charged correctly for the jobs that are taxable.

3/12/16       #3: Calif Sales Tax Audit ...
Alan F.

One of the first thing they will look at is your out of state purchases that don't have tax applied and equipment purchases.

They will do a ratio analysis of some of your jobs and sales tax paid and if its out of wack you will need to provide the details.

As Pat said if you are installing work then the tax basis is different. Also if the invoice says
Cabinets 8000
Delivery 500
Sales tax (on the 8500)
installation 1500
Then they just confirm correct districts etc.

If you pay tax on materials and sell cabinets without install you owe tax on the difference.
A-

3/12/16       #4: Calif Sales Tax Audit ...
Slam Dunk

Alan, I understood that if installation was 10% or more of the total, then you charge tax on materials only. Another thing I do is a lump sum contract that does not show sales tax broken out as a line item. And I just bought a used CNC machine out of state, and did not pay tax, am I supposed to?? I don't pay sales tax on other purchases out of state, although I bought a used motorcycle out of state, and had to pay sales tax at registration.

3/12/16       #5: Calif Sales Tax Audit ...
Alan F.

Lump sum with installation as more than 10% is tax on materials only. You will need shop hours /cost and installation hours cost as a proof so 900 in shop labor 150 in installation passes
If you have any that are close then you can ply overheads and expenses to get to the 90/10.

You owe use tax (sales tax on equipment) on the CNC, it might qualify for the 4.1875 rate reduction in the link below.

You owes sales/use tax on other purchases from out of state.

A-

PARTIAL EXEMPTION CERTIFICATE FOR

3/12/16       #6: Calif Sales Tax Audit ...
Alan F.

more on the sales tax exemption can be found here

Manufacturing and Research & Development

3/12/16       #7: Calif Sales Tax Audit ...
Slam Dunk

Many Thanks, Alan. I was aware of the partial exemption, but I thought it applied if I bought in California. I'm glad you confirmed the 10% on materials. Weren't you the one who had a long drawn out issue with the Board of Equalization a few years ago?

3/13/16       #8: Calif Sales Tax Audit ...
Alan F.

Slam,
We had an audit a long time ago and they told us to pay tax on everthing but installation, a few years later I was at a Saturday Breakfast with some other shops and we had a notice for an audit and I asked about the 90/10 rule and everyone had been audited and everyone was told to do it differently. I did some research and we ended up getting about 60K plus 15k in penalties back.

We had to reconstruct all the job data and do the 90/10 proof on a different random samples of jobs ( this was in 88 or 89) so it was in Lotus and it took a lot of time

A-

3/13/16       #9: Calif Sales Tax Audit ...
rescraft

Have a good friend of the family that works for State of Cali Tax board.
He told me, if the dollar amount is under $10,000, they don't even bother.

Just my .02

3/14/16       #10: Calif Sales Tax Audit ...
Alan F.

rescraft,
Once they schedule an audit and show they need to generate enough income to make it worth while or get out of there quickly. We had an auditor here for 6 weeks once, this was in the early 2003/4 and they did ratio analysis and thought we owed them 90 grand, then they looked at leased machines and we hadn't paid the tax (the lease company did and wrapped it into the lease so we could get an exemption at the time).

Long story short they walked out of here with $900 bucks. Must of cost them 30k to get that $900.

3/16/16       #11: Calif Sales Tax Audit ...
BG

We're going through this right now. We're a licensed C-6 contractor in California. We do lump sum contracts. We buy our material and pay tax at time of purchase. We did not tax the customer, which is ok, IF we did the instalation, which was always more than 10% of the job. They are going after the jobs we did not install ( 15-20% of our business) and calling us a retailer for those. Telling us we we're supposed to tax our labor, overhead, profit, ( basically everything other than the material we already paid tax on ) on the jobs we did not install. Thinking about seeking council, but can't seem to find anybody other than the guy on the radio. I'll take any advice I can get, as for right now, its a large amount of money we don't have. And no, the original auditor had no clue how the laws worked. We met with her 3 times, and then finally went to the city to her supervisor.

3/16/16       #12: Calif Sales Tax Audit ...
Pat Gilbert

I don't know about the BOE but with the IRS I have used a guy who was an ex IRS agent that then negotiated the bill and kept them off of my back. I would guess there is something similar for the BOE.

3/16/16       #13: Calif Sales Tax Audit ...
Slam Dunk

I have been highly aware of this tax law for quite a while, thanks to Woodweb, and Alan F's . The only difference is we don't pay the sales tax when we purchase, and we charge the customer tax on the marked up amount of the materials. I wonder if we have been overpaying! I'm not sure what you can do to get out of paying the tax, especially if the auditor has the records, or copies of them....

3/16/16       #14: Calif Sales Tax Audit ...
Alan F.

BG,

You owe tax on the sales amount when you don't install or its free standing or takes less than 10% to install ( unless it ships out of state or is sold to someone with a resale number). I doubt you can win a fight on this unless they told you differently some point along the line.
A-

3/16/16       #15: Calif Sales Tax Audit ...
Alan F.

Slam,
You are overpaying, if there is no documentation to the customer that shows the amount of tax paid or charged, they owe you a refund.

For lump sum you should be paying tax on your COST of materials. The amount of tax is determined by the district you install in.

If I was you I would put your audit off a little bit and prepare all your documentation showing what you owe (out of state ) simple cover sheet or report on jobs showing the assembly /install is more than 90/10.
Then show tax paid and amount that should have been paid. You will have to go thru all this for every job to get money back so you may as well do the work before the audit starts.

You would owe a penalty on the out of state stuff and they used to penalize themselves for over payments.
A-

3/16/16       #16: Calif Sales Tax Audit ...
BG

Thanks Alan. Lesson learned, and it sucks, but at least 80% of what we did, we did right, and that means not taxing the customer. Can you input on taxing overhead and profit as well? The SBOE is telling me I have to pay tax on that too...
Here's an example.

Kitchen - 50,000 to client (not installed)
Design time 2,000
Material 25,000
labor 13,000
overhead 4,000.00 ( rent, elec, etc )
Profit 6,000.00

3/17/16       #17: Calif Sales Tax Audit ...
Alan F.

BG,

Design labor is taxable when it is related to the sale of taxable material, so the kitchen design labor is taxable, if you design a patio that someone else builds then that labor isn't taxable. Other than that its just like buying a TV at Wal-Mart. You are making a retail sale. You proposals should read
1 Set of Custom cabinets $50,000.00
1 Delivery to xyz 1,200.00
Sales tax on 51,200 $4,608.00
Total $55,408.00

Then if they compare you to a Big Box its detailed the same.

If you sell to a decorator with a resale certificate then there is no tax.

The sales tax is based on the delivered location, so a Kitchen delivered to Nevada has no CA sales tax.

Overhead and profit really don't come into play.

Replacing a hinge on a door, only the hinge is taxable.

3/17/16       #18: Calif Sales Tax Audit ...
Alan F.

BG,
This is one we proposed last week
A-

Click the link below to download the file included with this post.

Sample_Proposal.pdf

3/17/16       #19: Calif Sales Tax Audit ...
BG

Thanks for taking the time, Alan. I don't know where I'd be without Woodweb. You guys rock. I'll go face the music, and keep on going.

5/10/23       #20: Calif Sales Tax Audit ...
celinedion Member

Website: http://mapquestdrivingdirections.app

The audit process can vary in terms of its level of detail and length depending on the scope of the audit and the complexity of the business's tax situation.

5/10/23       #21: Calif Sales Tax Audit ...
Pat Gilbert Member

Alan is a real loss to this forum


Post a Response
  • Notify me of responses to this thread
  • Subscribe to email updates on this Forum
  • To receive email notification of additions to this forum thread,
    enter your name and email address, and then click the
    "Keep Me Posted" button below.

    Please Note: If you have posted a message or response,
    do not submit this request ... you are already signed up
    to receive notification!

    Your Name:
    E-Mail Address:
    Enter the correct numbers into the field below:
     

    Date of your Birth:



    Return to top of page

    Buy & Sell Exchanges | Forums | Galleries | Site Map

    FORUM GUIDELINES: Please review the guidelines below before posting at WOODWEB's Interactive Message Boards (return to top)

  • WOODWEB is a professional industrial woodworking site. Hobbyist and homeowner woodworking questions are inappropriate.
  • Messages should be kept reasonably short and on topic, relating to the focus of the forum. Responses should relate to the original question.
  • A valid email return address must be included with each message.
  • Advertising is inappropriate. The only exceptions are the Classified Ads Exchange, Machinery Exchange, Lumber Exchange, and Job Opportunities and Services Exchange. When posting listings in these areas, review the posting instructions carefully.
  • Subject lines may be edited for length and clarity.
  • "Cross posting" is not permitted. Choose the best forum for your question, and post your question at one forum only.
  • Messages requesting private responses will be removed - Forums are designed to provide information and assistance for all of our visitors. Private response requests are appropriate at WOODWEB's Exchanges and Job Opportunities and Services.
  • Messages that accuse businesses or individuals of alleged negative actions or behavior are inappropriate since WOODWEB is unable to verify or substantiate the claims.
  • Posts with the intent of soliciting answers to surveys are not appropriate. Contact WOODWEB for more information on initiating a survey.
  • Excessive forum participation by an individual upsets the balance of a healthy forum atmosphere. Individuals who excessively post responses containing marginal content will be considered repeat forum abusers.
  • Responses that initiate or support inappropriate and off-topic discussion of general politics detract from the professional woodworking focus of WOODWEB, and will be removed.
  • Participants are encouraged to use their real name when posting. Intentionally using another persons name is prohibited, and posts of this nature will be removed at WOODWEB's discretion.
  • Comments, questions, or criticisms regarding Forum policies should be directed to WOODWEB's Systems Administrator
    (return to top).

    Carefully review your message before clicking on the "Send Message" button - you will not be able to revise the message once it has been sent.

    You will be notified of responses to the message(s) you posted via email. Be sure to enter your email address correctly.

    WOODWEB's forums are a highly regarded resource for professional woodworkers. Messages and responses that are crafted in a professional and civil manner strengthen this resource. Messages that do not reflect a professional tone reduce the value of our forums.

    Messages are inappropriate when their content: is deemed libelous in nature or is based on rumor, fails to meet basic standards of decorum, contains blatant advertising or inappropriate emphasis on self promotion (return to top).

    Libel:   Posts which defame an individual or organization, or employ a tone which can be viewed as malicious in nature. Words, pictures, or cartoons which expose a person or organization to public hatred, shame, disgrace, or ridicule, or induce an ill opinion of a person or organization, are libelous.

    Improper Decorum:   Posts which are profane, inciting, disrespectful or uncivil in tone, or maliciously worded. This also includes the venting of unsubstantiated opinions. Such messages do little to illuminate a given topic, and often have the opposite effect. Constructive criticism is acceptable (return to top).

    Advertising:   The purpose of WOODWEB Forums is to provide answers, not an advertising venue. Companies participating in a Forum discussion should provide specific answers to posted questions. WOODWEB suggests that businesses include an appropriately crafted signature in order to identify their company. A well meaning post that seems to be on-topic but contains a product reference may do your business more harm than good in the Forum environment. Forum users may perceive your references to specific products as unsolicited advertising (spam) and consciously avoid your web site or services. A well-crafted signature is an appropriate way to advertise your services that will not offend potential customers. Signatures should be limited to 4-6 lines, and may contain information that identifies the type of business you're in, your URL and email address (return to top).

    Repeated Forum Abuse: Forum participants who repeatedly fail to follow WOODWEB's Forum Guidelines may encounter difficulty when attempting to post messages.

    There are often situations when the original message asks for opinions: "What is the best widget for my type of shop?". To a certain extent, the person posting the message is responsible for including specific questions within the message. An open ended question (like the one above) invites responses that may read as sales pitches. WOODWEB suggests that companies responding to such a question provide detailed and substantive replies rather than responses that read as a one-sided product promotion. It has been WOODWEB's experience that substantive responses are held in higher regard by our readers (return to top).

    The staff of WOODWEB assume no responsibility for the accuracy, content, or outcome of any posting transmitted at WOODWEB's Message Boards. Participants should undertake the use of machinery, materials and methods discussed at WOODWEB's Message Boards after considerate evaluation, and at their own risk. WOODWEB reserves the right to delete any messages it deems inappropriate. (return to top)


  • Forum Posting Help
    Your Name The name you enter in this field will be the name that appears with your post or response (return to form).
    Your Website Personal or business website links must point to the author's website. Inappropriate links will be removed without notice, and at WOODWEB's sole discretion. WOODWEB reserves the right to delete any messages with links it deems inappropriate. (return to form)
    E-Mail Address Your e-mail address will not be publicly viewable. Forum participants will be able to contact you using a contact link (included with your post) that is substituted for your actual address. You must include a valid email address in this field. (return to form)
    Subject Subject may be edited for length and clarity. Subject lines should provide an indication of the content of your post. (return to form)
    Thread Related Link and Image Guidelines Thread Related Links posted at WOODWEB's Forums and Exchanges should point to locations that provide supporting information for the topic being discussed in the current message thread. The purpose of WOODWEB Forums is to provide answers, not to serve as an advertising venue. A Thread Related Link that directs visitors to an area with inappropriate content will be removed. WOODWEB reserves the right to delete any messages with links or images it deems inappropriate. (return to form)
    Thread Related File Uploads Thread Related Files posted at WOODWEB's Forums and Exchanges should provide supporting information for the topic being discussed in the current message thread. Video Files: acceptable video formats are: .MOV .AVI .WMV .MPEG .MPG .MP4 (Image Upload Tips)   If you encounter any difficulty when uploading video files, E-mail WOODWEB for assistance. The purpose of WOODWEB Forums is to provide answers, not to serve as an advertising venue. A Thread Related File that contains inappropriate content will be removed, and uploaded files that are not directly related to the message thread will be removed. WOODWEB reserves the right to delete any messages with links, files, or images it deems inappropriate. (return to form)
    Sponsors
    • Rangate
      Woodworking Machinery, Supplies and Knowledge
    • Air Handling Systems
      Your Best Source for Dust and Fume Collection
    • WoodJobs.com Search Consultants
      Free Employment Service for Woodworking Related Job Seekers
    • Impact Search and Placement
      Professional Employment Recruiting Specialists
    • Machine Bid
      Online auction site for buying and selling high-quality machinery. We offer a secure, online bidding platform, featuring CNC routers, Edgebanders, Sanders, and much more; new equipment added daily
    • TradeJobPlacement.com
      Individualized Placement Services, Specializing in Millwork Design Engineers
    • OMEC/Macoser Inc
      Exclusive Importer of European Woodworking Machinery Since 1988
    • Parts Cutter CNC
      CNC Cabinetry and Closet Parts
    • Better Vacuum Cups, Inc.
      Vacuum Cups for All CNC Routers As Well As Many After Market Parts for Your CNC
    • TradeSoft
      Seamless Management Software to Improve Estimating, Job Costing, Scheduling, Purchasing, Shipping, and Shop Floor Data Collection
    • ULTI-BOARD
      The Ultimate Spoilboard - ULTI-BOARD - Specifically Engineered and Formulated for the Ultimate in Spoilboard Performance - Not Your Ordinary Sheet of MDF.
    • Cabinetshop Maestro
      Web-Based Project Management Software for Custom Cabinet Shops - Manage Jobs from Prospect to Punchlist Through Scheduling, Task Management, Time Tracking and Communication
    • INNERGY
      INNERGY is the ERP for woodworkers, by woodworkers. We are birth to death millwork.

    Become a Sponsor today!