Charged Sales Tax To have Lumber sanded?

[Mark R Webster]

I live in California. I glued up some wide panels out of solid wood and took them to a lumber yard that had a wide belt sander to have them run them through to clean them up. When I paid for the panels I was charged sales tax. It was my wood I made the panels, they just sanded them down. I assumed there would just be a labor charge and no sales tax. Anyone know if this was appropriate (in California)? Thanks:confused:

[Bruce Wrenn]

Here in NC, I now have to collect sales tax on my labor (7.25%.) Because I'm self employed, it amounts to a 7.25% income tax surcharge in addition to income tax paid on earnings. Labor covers the costs of operating a business, which includes other things that you have already paid taxes on. Think, gasoline, electricity, phone service internet, tools, etc. It amounts to double taxation. When you do business deductions from earnings, it amounts to an almost 50% surcharge on actual earnings. Our legislator says they cut taxes. Millionaires no longer pay sales tax on yachts, and airplanes, so Joe Smuckerelly has to pick up the slack.

[Mark R Webster]

Interesting :mad:

[Greg R Bradley]

Doing business in California is interesting to say the least. It makes you want to kill all the legislators. I've learned more than I really wanted to know about Sales Tax requirements after having several people from the state board audit me, usually 2-3 people for several days at a time. Like a lot of our laws, it isn't black and white but open to interpretation so that these dirtbags can justify their salaries while they suck the blood of people who actually work for a living.
Most people interpret the law as labor being non taxable and materials being taxable. Actually the code says all sales are taxable with certain exemptions. Some of those exemptions are "installation labor", "repair labor", and other items. So many people could interpret an labor as improving an item or any other type of manufacturing or fabrication as being taxable.
So if you buy an item an pay someone to install it, the installation labor should be nontaxable. If you pay someone to repair something, the repair labor should be nontaxable. If you pay someone to build something, the labor IS taxable and many people miss that.
It is easy to see how the company doing the sanding would consider that an improvement and therefore taxable but many providers would consider that a service and not charge tax, at least until they are audited by the State Board of Equalization who may decide that some of that WAS taxable.
Clear as mud, right?

[Bradley Gray]

sales tax on labor in Ohio too

[Mark R Webster]

I guess it could be worse for us then. :o

[Mark R Webster]

Hi Greg, Thanks, actually that helps! The local company gave me the impression that the State Board of Equalization had told them specifically they had to charge sales tax for this type of service. Maybe they were recently audited and as a result were "toeing" the line. :rolleyes:

[Rick Malakoff]

I live here and that's a new one, I could see if you bought the lumber there and had it sanded there would be sales tax on the total sale.
But if you got in touch with the State Board of Equalization they would say "Oh yes you have to pay sales tax on that" how else would the state be able to pay for The Bullet Train, lets not forget the dam. What Dam?

Rick
Sick and tired how this state treats it's taxpayers!!!

[Rick Malakoff]

One other thought, I use to build homes and there was never mention of sales tax on the labor to build them.

[Mark R Webster]

Doesn't make sense to me. :(

[Peter Kuhlman]

Sales tax to me always meant tax on a physical object purchased. In Michigan I only paid tax on parts, materials but never labor as on a car repair. Here in Louisiana I don't understand at all how it works. I pay sales tax on movie rentals, movie tickets, auto repair labor. I don't pay any sales tax on contractor supplied and installed items like windows, home remodeling projects. Weird! With the state $1billion in the red we will see major tax increases next year and we are already at 10% sales tax. That really hurts on automobile purchases and other expensive items. Tax on a new car is more money than my first new car cost total - yea I am that old!

[Rod Sheridan]

Where I live we have an HST (Harmonized Sales Tax).

It covers Federal and Provincial taxes, and is applied to labour, goods, services etc. There are almost no tax exemptions for it.

To me, paying tax on labour looks normal..........Rod.

[Scott Brader]

The convoluted sales tax laws in California are what led our company to stop all sales directly to our customers all over the country and only sell through distributors. Their quarterly forms took us tons of time and we had to track over 70 taxing entities just for CA. We're a small company (9 people) in WI and we just couldn't justify all of the headaches and hassles of the sales tax reporting, etc. required. Selling through distributors only has made my job a lot easier because we do not make taxable sales anywhere in the country. I know this doesn't really address your tax on labor issue. Sorry...

[Jim Becker]

Sale tax is "local" and regulations are at the state level for the most part. Some jurisdictions require collection on services; some do not. Your jurisdiction's requirements should be readily available on their public web site.

-----
BTW, folks...don't turn this "political" as that is not permitted at SMC per the TOS.

Jim
Forum Moderator

[Mark R Webster]

Thanks all for the very enlightening responses. Having lived in CA all my life I didn't realize "State" sales tax could be so different based on where you lived. We on the other hand have often seen regional add ons to the basic "sales tax" for various reasons. Yes Jim I agree let's get "political". That was not my intention. My main goal was to determine if my lumber yard had misinterpreting the tax laws here in CA. It just didn't make sense based on my limited understanding of labor and sales tax.

[Prashun Patel]

Are you saying a sales tax on sanding rubs you the wrong way? ;)

[glenn bradley]

so that these dirtbags can justify their salaries while they suck the blood of people who actually work for a living.

Don't hold back. Tell us how you really feel. :D

[Mark R Webster]

I would say that is accurate ;)

[Mike Cutler]

Mark

In Ct. it's covered under the goods and services tax. Like other states, it's difficult to determine exactly what qualifies for the tax and what does not. I think they do this so that they can "define" later instead of trying to pass additional legislation.

[Mark R Webster]

Interesting:rolleyes:

[J.R. Rutter]

I have to charge it in WA, unless you give me a copy of a reseller permit. I don't think that it is uncommon at all.

[Rick Potter]

Hi Mark,

When I read the title line to your post, I thought to myself 'Hah, he lives in California'.

When I opened the post....Bingo!!

Another burden we bear, right? Just remember though.......some states also have CITY sales taxes on top of everything else. Some states have no sales tax but uber high property tax. One way or another they all want their slice of you.

[Chris Padilla]

I started humming that famous (INfamous?) Beatles' song, Taxman, as I read along....

[Mel Fulks]

In Virginia you you pay tax on labor that is done in shop. Place I worked made a big deal of it but finally gave up

[Rick Malakoff]

When I had a wood products manufacturing business (building and installing backyard sheds) we charged sales tax to the finished product, which was better than having to deal with state contractors board so that worked better for us.

Rick

[Mike Manning]

Greg,
I can understand how you feel but I doubt seriously the CA tax statutes and laws are open to interpretation by the auditors. Unfortunately, it is often the case that a lot of auditors really don't understand the laws and unintentionally misinterpret them. I'm not a tax auditor but I've been married to one for 30+ years now. Not in CA by the way. It is very difficult for small businesses to know and/or understand what they should be doing with respect to sales taxes. My wife always has great empathy for these families and their businesses but the law is the law in her eyes. I can't tell you how many times I've heard about instances where she audited a company after they'd been previously audited by another auditor who had totally screwed up the audit and not always in favor of the state. It's a complex and difficult situation for everyone involved and like you said "clear as mud, right?".

[Mark R Webster]

Thanks Mike

[Bill Dufour]

In California there is no sales tax on food. So a sandwich at Subway is $5.00. But have them toast it , for free, and it becomes hot food which is taxable. So the free toasting costs something like 45 cents.
Bill D.

[Bill Dufour]

In California the real estate people lobby hard to make sure that no sales tax is charged on the sale of property, like houses.
Bill

[Mark R Webster]

Not that I am complaining, but, seems like a "manufactured" product to me. :rolleyes:

[Ed Griner]

In New Jersey sales tax is charged on labor for "service calls" and "old work" projects. New work is exempt.

[Gary Cunningham]

Here in Ohio you pay a core tax on auto parts (starters, alternators & such). When you return the core they do not refund the tax charged on the core.
:mad:

[Kevin Jenness]

Interesting to read of the discrepancies from state to state. Here in VT the rules changed a few years ago to require sales tax on fabrication labor. I have been following that, but have had some pushback from customers indicating that many shops do not do so.

[Mark Bolton]

In most every state home purchase or new home construction are not assessed sales tax. Lawmakers know #1 it grows the economy and #2 it would stiffle the economy in a blink if they did it. Economic collapse. Its why they tax improvements. An addition, a remodel, and so on. Sanding the OP's panels is most definitely a taxable service. It'd be no different than buying 200 square feet of tile from the homecenter and bringing 50 tiles back to be cut on their diamond saw.You pay tax on the labor and expense to cut the tiles (even though you already bought the tile).

States need money to keep the wheels turning and when mega corporations arent paying a cent, or even their fair share, the minions are going to be left writting the checks.

[Martin Wasner]

States need money to keep the wheels turning and when mega corporations arent paying a cent, or even their fair share, the minions are going to be left writting the checks.

It doesn't matter if corporations, (of any size), pay any tax. The end user is still the one who pays. If tomorrow my business had to pay income tax, and was allowed no deductions. Guess what, the price just went up at least 40%.
It costs me about $250k per year to make about $15k. As I understand it, that's a pretty average return. If I don't make anything, I don't stay in business. If I don't stay in business, I don't pay any tax at all, I don't pay my part of my employee's taxes, I don't pay property taxes, I don't pay sales/usage tax. Pick on business's all you want, but mine pays a lot more in taxes than I make, and it doesn't pay a dime of income tax.

[Ben Zara]

250K in taxes with 15K profit? Explain!

[Martin Wasner]

250K in taxes with 15K profit? Explain!


$250k in sales produces $15k in profit.

[Don Orr]

Here in NY state we even have to pay sales/usage tax on shipping charges. I think that is a bit much. My county is one of very few that charges sales tax on heating oil. We pay sales tax on any prepared or "non essential" food. We also pay some of the highest property and income taxes in the entire nation as well as some of the highest utility rates. And they wonder why our population keeps declining.

[Rick Malakoff]

Hi Don,
If you want to be abused move to California!
Rick

[Don Orr]

Hi Don,
If you want to be abused move to California!
Rick
Judging by some of the comments in this thread I think I'll stay put-for now. It can always be worse. ;-)

[Mark Bolton]

It doesn't matter if corporations, (of any size), pay any tax. The end user is still the one who pays. If tomorrow my business had to pay income tax, and was allowed no deductions. Guess what, the price just went up at least 40%.
It costs me about $250k per year to make about $15k. As I understand it, that's a pretty average return. If I don't make anything, I don't stay in business. If I don't stay in business, I don't pay any tax at all, I don't pay my part of my employee's taxes, I don't pay property taxes, I don't pay sales/usage tax. Pick on business's all you want, but mine pays a lot more in taxes than I make, and it doesn't pay a dime of income tax.

Martin,
I am in no way trashing business. I have been self employed for nearly 30 years in the trade. The small guys like us pay our way because we dont have the revenue to put several high dollar tax attorneys and CPA's on the payroll who work full time in an effort to exploit every legal on and off shore option possible to reduce the companies tax liability. All legal, all above board (sorta), but none the less the logic that the taxes and revenue they generate through being an employer some how negate their responsibility to contribute to the society in which they profit doesnt hold water for me.

I dont mean to take the post off topic in any way, I am fine with taxation, I use a CPA annually to take every deduction my business is entitled to, but that said, I pay a far higher percentage than most large corporations (even in my local area) and thats only because I dont have the revenue to exploit and protect myself from taking the riskiest of exemptions. I have several friends who have moved their companies into S Corps using dividends, zero salary, leasing your equipment back to the business, sorta stuff to virtually negate tax liability. Legal but very risky,... I would just as soon contribute to my local school system, roads, public water supply, and so on.

I pay and charge tax for additional services on lumber all the time. S2S SLR1E from me, or my distributor, is a taxable item.

[Bob Vaughan]

$250k in sales produces $15k in profit.
That's about right. Even if you have $250K in dividend stocks, that's about all you're going to get per year. Seems that $250K is a magic (or tragic) number.

[Martin Wasner]

I have several friends who have moved their companies into S Corps using dividends, zero salary, leasing your equipment back to the business, sorta stuff to virtually negate tax liability. Legal but very risky,... I would just as soon contribute to my local school system, roads, public water supply, and so on.

My company is an S Corp. I pull money out through leasing equipment and now property to the company and don't pay myself a salary. I charge the company interest when it can't pay.

Schools and local infrastructure is funded through property taxes typically. Which was actually a major factor as to where I put my new building. It's in the boondocks, but I'm not going to be paying $50k a year in property taxes.

[David Kumm]

I've owned a CPA firm for 40 years and been lucky enough to accumulate a little wealth. My advice is to never take tax advice from SMC or any forum for that matter. The types of tax savings usually talked about are only good if you never get caught and seldom applicable to those who want to earn and accumulate any real assets. Dave

[Martin Wasner]

I've owned a CPA firm for 40 years and been lucky enough to accumulate a little wealth. My advice is to never take tax advice from SMC or any forum for that matter. The types of tax savings usually talked about are only good if you never get caught and seldom applicable to those who want to earn and accumulate any real assets. Dave

+1

Don't give away anything you don't have to is pretty vague and safe advice though?

[Mark Bolton]

Schools and local infrastructure is funded through property taxes typically. Which was actually a major factor as to where I put my new building. It's in the boondocks, but I'm not going to be paying $50k a year in property taxes.

Varies from sate to state. Here, several school systems in counties with very low population get their funding almost entirely from business equipment and inventory tax. States with very low population density and lots of AG land (usually taxed at 50%) simply cant generate enough revenue through property tax.

And I couldnt agree more about the boondocks. Our shop is on a main road but in a rural town (pop. <1000) about 35 miles outside the nearest city. We have been somewhat courted several times to move into the city into some very attractively priced, very large, and very well equipped, commercial space. While the pricing to buy these spaces is very attractive, as you say, they dont outweigh the benefit of tax rate, B&O taxes, employees being assessed city user fees withdrawn from their weekly pay, and so on. Not to mention Division of Labor and OSHA being on top of you all the time.

[lowell holmes]

We don't tolerate that nonsense in Texas :)

General Sam Houston would roll over in his Grave.

We do have a sales tax though.

[scott vroom]

I don't mean this to sound like a gloat.......not :D

[Mark Bolton]

Its all so dependent on what you do, how you live, and so on. Unfortunately money to run and maintain a state has to come from somewhere. So if there is no sales tax that money is coming either from business, property tax, income tax, and so on. As Martin said, the dollars are simply going to come from somewhere.