Sales Tax Rules for Cabinet Installations

Sales tax rules for cabinets vary by state, and can be hard to figure out. June 23, 2006

Question
I have been in business full time almost a year. After being in business about 4 months, I hired an accountant, who has been very helpful and a good consultant. She told me that I am supposed to collect sales tax on my cabs, same as the big box stores, but I have lost jobs because of my higher price. I show the estimate with subtotal, sales tax, total figure, but usually the customer just sees that I am 500-700 higher that the next guy. I don't think my competitors include sales tax in their estimate. What should I do? Leave the sales tax line out of the estimate? Surprise the customer at the end of the job with the sales tax charge? Don't say anything to the customer about sales tax and build it into my estimate?

Forum Responses
(Business and Management Forum)
From contributor A:
In South Carolina I do not have to collect sales tax as long as I pay sales tax on my supplies. In other words, I am not sales tax exempt. It may be different in your state, but I believe your accountant should be able to guide you on this.


From contributor P:
The rule in California is that if your installation is more than 10% of the labor on the job, then you pay sales tax on the material, but you do not charge the customer sales tax.

From contributor B:
Check with your local authorities. In Louisiana, there is no tax on installed cabinets. But if I don't install them, I'm supposed to charge tax. If I build a freestanding piece of furniture, it is taxable. If I screw it to the wall (with one screw), it is installed and not taxable!

From contributor H:
Sell the job as a contract price. No breakdown of material, labor, del, tax, etc. Be sure and pay the tax on your costs. Keep the receipts as proof. Being sales tax exempt does not mean you don't pay sales tax. You just get to turn it in yourself. Thing is... many people don't. And from the state's point of view, what's better - tax on 50.00 worth of plywood or tax on 200.00 worth of cabinets?

From contributor J:
In California, if you build something new and sell it, you charge sales tax. If you repair something, it is just labor - there is no sales tax. Cabinets are absolutely a product, so they are taxed. I cannot see why other states with sales taxes wouldn't want this money, too.

From contributor E:
A little tip on sales tax Florida does not make well known, but my accountant told me. You charge the full amount of tax. However, you remit the full amount -.5%. The state lets you keep this 1/2% because you are acting as an agent of the state when you collect the tax. It is your payment for this service.

I don't know about other states and I know 1/2% is not much, but it's money that is yours. As far as Florida sales tax, there are about a million rules depending on what your business is classified as (contractor, construction, manufacturer, installer, etc.), what type of work you are performing, if you use materials or if it's just labor, and if the moon is in the waxing phase. It's just crazy.

One more thing. You should lose jobs because other shops are lower than you. If your prices are set correctly, you should get about 30-40% of what you estimate. You don't bid. You tell them what it will cost. If it's too much, tell them you can work to their price, but they have to give up stuff. Lower quality slides, different wood, different construction methods, whatever. We are highly skilled professionals in a dying breed and should be paid as such.


From contributor J:
I have gone the way of paying taxes on all my materials and not charging my clients tax. I believe, for tax purposes, I am charging for a service instead of selling a product. If you do not pay taxes on your materials (tax exempt), then you are selling a product and have to collect tax. At the end of the day, though, I follow my accountant's advice!

From contributor V:
This is what the IRS told me in Wisconsin:

situation 1
If the homeowner is buying the cabinetry directly from me, no install, then I charge tax on the total cost of the kitchen (same as a box store).

situation 2
General contractor is buying the cabinets, then charge tax on materials, again no install.

situation 3
If either buys the cabinets but my company is doing the install, then charge tax on the materials, but none on the labor of building the cabinets or the install.

situation 4
If either buys the cabinets and I am subbing out the install, then charge tax on the kitchen cabinets and not the install (install in that case is a service).

I do have an accountant and we had trouble interpreting the laws, so we called the IRS office in our area to get it correct. As for how I write up my estimates, I give them a subtotal and then state after that it's "plus all appl. taxes." I got this idea from a local building materials yard. The client brought in their bid and wanted to know why I was so much higher. At that time I gave them the grand total with the tax included. When I pointed that out to the customer and we figured the tax on his, I was only $1000.00 higher with a much better product, and the customer went with me. From then on, I point out to the customer that the price does not include the tax on the estimate.


From the original questioner:
I am in southeast Missouri.

From contributor S:
I read through your state sales tax guide and I found no exemption for sales tax on labor costs for capitol improvements. It seems on the surface that tax is supposed to be collected. If this is the case, you want to fill out a sales certificate so you don't pay sales tax on materials anymore and you will need to charge the full amount on your entire contract.

From contributor M:
I am exempt from paying sales tax on my materials, tools, and equipment. If it is used to physically or chemically change the material, I do not have to pay sales tax. I am, however, required to collect sales tax on product and delivery. Service is not taxable, but must be billed separately. I can pay the taxes on the materials and just roll this expense into the final number. Some of the other shops may be doing this. There are some exemptions when you are dealing with permanent fixtures (fastened to the wall). Call your local sales tax office. Ours have been very helpful, even identifying loopholes that save us and the customer.