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California Sales Tax11/21
This questions is specific to California and the collection and payment of sales tax. We currently have a resale number so we do not pay sales tax on the purchases of materials from our vendors. Researching the sales tax rules recently I believe we maybe calculating it wrong. We install the cabinets we produce and according to the rules we do not need to charge sales tax on the labor of manufacturing the cabinets if the cost of installation exceeds 10% of the project total which is the case on most of our projects. We currently are charging sales tax on the manufacturing labor no matter what the percentage of the total installation labor is for the project. Can anyone clarify for me the correct method used in California?
I am not sure about California but in Texas, the state sales tax office is super helpful in helping you navigate the details about your tax situation. Perhaps give your state office a call. There is no better reassurance than hearing it from the horse's mouth.
It depends on the form of your contract and proposal.
A proposal that states
And you collect $8,000 in sales tax then you owe the state $8,000 assuming the rate you charge is at least the correct rate for the delivery address.
If you have a proposal/ contract that states Cabinets delivered and installed all taxes included $110,000.00
You also do not want to ever breakout sales tax or delivery on work product, change orders or any other documents.
If you do FSC TM you should do a proforma invoice without tax that is separate from your billing invoice.
The Lump sum rule does not apply to furniture that is movable or any items that aren't attached to the real estate.
You should change your methodology and if you haven't been audited you should file for a refund for the last 3 years if you meet the conditions.
When we first brought this up with the state at an audit we got back about 75k (1988) and they randomly selected jobs and made us do proofs (shop hours, install hours, delivery hours, overhead costs). When all those jobs met the test they randomly selected more jobs. At the time because of the size of the refund it took about 10 months to process after the BOE approved the refund ( lots of different department had to sign off).
In a subsequent audit the auditor asked me how we knew going in if a job was lump sum or not I showed her a magazine with a photograph and asked what type of sale it was.
We also do labor and material estimating so we had a breakout at time of estimate.
We prepare a report that has a total of fabrication labor and a total of installation labor and its on top of the job file for every job as a proof of compliance.
You should also pay sales tax on nails, staples, dowels, screws and any other items that you don't want to track on a job by job basis.
"(2) PREFABRICATED CABINETS. A cabinet will be considered to be "prefabricated" and a "fixture" when 90 percent of the total direct cost of labor and material in fabricating and installing the cabinet is incurred prior to affixation to the realty. In determining this 90 percent, the total direct cost of all labor and materials in fabricating the cabinet to the point of installation will be compared to the total direct cost of all labor and materials in completely fabricating and installing the cabinet. If more than one cabinet is fabricated and installed under the contract, each cabinet will be considered separately in determining whether the cabinet is prefabricated."
What Alan said.
What Alan said.