Category

Contractor/Repair Services

Mar 21
0

Ignorance is not Bliss (when it comes to sales tax!)

By | Contractor/Repair Services, Retail

This has been a week of delivering bad news to companies who contacted me only after being notified by a state taxing jurisdiction that they were not in compliance.  As predicted, their first words were “Why didn’t someone tell me _________”?   It’s really hard to know how much of this whining to believe. Over the years I’ve found business of all sizes to fit into one of three categories when it comes to sales tax (and probably other taxes):

1. Those that don’t want any information or advice unless they initiate the dialog.
2. Those that solicit information and promptly ignore or don’t believe the advice they get.
3. Those that welcome and follow the advice from trusted advisors and implement their suggestions as appropriate

When I get calls from companies who find themselves in trouble, it’s hard for me to figure out which category they fall into.  Almost all of them have an outside CPA so I know that they are having some interaction with a tax professional at some point in the year.  Whether their advisor knows anything about sales tax is a different story (and different blog entry).

Regardless of the type or quality of advice these businesses may have received, it is still startling that the owners have taken no initiative to find out what their obligations were as a multistate business.  How, in once case, could a contractor doing business in 10 states not wonder if they had any type of multistate sales tax or income tax problem?  Did they just think that they could wonder from state to state doing construction projects without having any type of state tax issues? (Apparently the answer was “yes”).

This type of ignorance is dangerous to the business and the business owner.  With more states enforcing their officer liability rules, the owners and officers of the companies are now personally liable for the ignorance (or lack or curiosity) of their business managers when it comes to multistate tax.  In the short term, ignorance may be bliss, but in the long term, ignorance is dangerous and could be catastrophic for the business and its owners.

Because most CPAs only have a rudimentary working knowledge of multistate sales tax, don’t expect them to be the only resource available to you for quality advice.  If you have any questions please contact me for a free 30 minute discussion. https://www.salestaxstrategies.com/index.html
Ned Lenhart, CPA
President

 

 

Sep 14
0

Tricky New York Sales Tax on Capital Improvements

By | Contractor/Repair Services, Tax Audit

The NY Department of Finance issued an updated Bulletin on the application of New York sales tax to capital improvements.  New York, as expected, makes this a challenging element for sales tax administrators to deal with.

In general, capital improvement projects are not subject to sales tax.  These must meet the following 3 tests: (1) substantially adds to the value of the real property, (2) becomes par of real property or is permanently affixed to real property, (3) is intended to become a permanent installation.

If the project qualifies as a “capital improvement” the contractor must obtain form ST-124 from the customer or be able to defned the nature of the project as a capital improvement.  If the item is a capital improvement, tax is paid by the contractor on the items purchased and no tax is collected from the customer.

If the project is not a capital improvement but is a “repair”, then the project is taxable on the materials and the labor charges. 

If out-of-state vendors are working in NY and are doing work that does not qualify as a capital improvement and they have paid tax on the materials used, then there could be significant tax implications and double taxation related to materials.   Be sure to carefully identify the nature of the projects you perform in NY to determine whether they are taxable repair services or nontaxable capital improvements.

Ned Lenhart, CPA
President

 

 

Jan 06
0

Taxation of Labor Charges-Be alert to unique rules

By | Contractor/Repair Services, Retail

Lately I’ve been working with companies that provide materials and installation services to customers throughout the U.S.  In some cases, the materials are sold to customers and then separate installation services are arranged.  In other cases, the materials are provided by my clients and installed with line-item invoicing done for billing.  In some cases the materials sold remain personal property and in other cases the property is incorporated to real property.  It’s a real mixed bag of situatios.  In most cases, the labor to install, hook up, or affix the property is separately stated.  In the vast majority of states, these separated stated labor costs are not taxable even if the property remains personalty after installation.

In about a 15 states, however, the rules on the taxation of these separately stated labor costs is far more complex.  Much more so than I had first suspected.  In some states, the separate stated labor is taxable as a matter or law.  It makes no differenc wether the properyt is personal or real after installation.  In other states, the labor is taxable unless the installation is related to a “capital improvement” of the building.  In these cases the term “capital improvement’ is defined.  If the requisite improvements don’t occur, the the labor is taxable as repair labor even if it relates to real property.  And finally, there are states that tax installation of personal property even when separatly stated and even if the property remains personal property after installation. 

Just because your state does not tax separately stated installation labor, don’t assume that other states will follow suite.  Where invoices separatly state materials and labor, its quite possible the materials will be taxable since the invoice looks like a retail sales invoice and not a contractor invoice.   These rules become even more complex when subcontractors perform the work on your behalf but your company “marks up” their labor and material charges and then bills the final customer.    Be alert to the complexity of these rules.  Get the help you may need to understand how the states tax services.  States like Washington, Texas, New Jersey, and New York have  very specific rules on when real property and personal property services are taxable.

Ned Lenhart
President
Interstate Tax Strategies