sub and taxes
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I'd have a few questions (and tax laws are particular to the state where the work is being done). Is he invoicing for tax on labor, material or both. Is he itemizing the cost of materials and invoicing for a reimbursement on the tax he paid on those materials?
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Maybe he's confused. Sales tax on labor? I haven't run on to that here.
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this sounds crazy to me. All of our subs include that in their price. It is on them to file after we 1099.
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The bottom line is that most states / local jurisdictions require sales tax be collected by the revenue authority on the mark up of materials or any materials that are not exempted by a tax exempt certificate. But the sales tax will be collected at some point. Your considered a reseller (us contractors) so you have to pay the sales tax on the mark up. I / we have already paid the sales tax on the net amount when the materials are purchased. The state wants to collect the sales tax on the difference.
In reality (small - med) contractors registering with the state to send in the addl sales tax is rare. By doing so you just get on the list to be audited at some point. Your plumber probably got wind of this at some point and is making the appropriate changes in his bookkeeping. He may purchase materials tax exempt then collect it on his selling price, or has made a formulation to be sure its covered and its under his sales tax collected account.
Just ask for an explanation. This may become more common. I will say that I / We / Us are responsible to pay the sales tax on the mark up of materials. Some will include it in the total job cost, others may not.
In reality (small - med) contractors registering with the state to send in the addl sales tax is rare. By doing so you just get on the list to be audited at some point. Your plumber probably got wind of this at some point and is making the appropriate changes in his bookkeeping. He may purchase materials tax exempt then collect it on his selling price, or has made a formulation to be sure its covered and its under his sales tax collected account.
Just ask for an explanation. This may become more common. I will say that I / We / Us are responsible to pay the sales tax on the mark up of materials. Some will include it in the total job cost, others may not.
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Someone has to collect and submit the tax, I prefer to pay it at the earliest point in the process.
I pay the distributor, and let them have the burden of compliance. As long as my invoice says that I paid the tax I am covered.
I bill lump sum, and place all my profit on labor, then I do not have to deal with the state for the difference.
But if it is T&M, and sales tax is part of the M, why wouldn't you pay it? If you think he is BSing you, get set up to collect sales tax with your state, give him the appropriate documentation, and have him remove it from his billing. (I do not recommend this, because you will always be in the system)
I pay the distributor, and let them have the burden of compliance. As long as my invoice says that I paid the tax I am covered.
I bill lump sum, and place all my profit on labor, then I do not have to deal with the state for the difference.
But if it is T&M, and sales tax is part of the M, why wouldn't you pay it? If you think he is BSing you, get set up to collect sales tax with your state, give him the appropriate documentation, and have him remove it from his billing. (I do not recommend this, because you will always be in the system)
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You're in PA right ? I couldn't find the regs for PA but this is for your neighbor. I would expect this to be in more states asap ?
http://www.state.nj.us/treasury/taxation/pdf/pubs/sales/su2.pdf
http://www.state.nj.us/treasury/taxation/pdf/pubs/sales/su3.pdf
http://www.state.nj.us/treasury/taxation/pdf/pubs/sales/su2.pdf
http://www.state.nj.us/treasury/taxation/pdf/pubs/sales/su3.pdf
Check with your state department of revenue to see if labor and material are taxable, and also see if the sub has the appropriate tax certificate.
If he does he isn't charging you sales tax, he is collecting it for the state.
If he doesn't have the proper certificate to collect sales tax, I wouldn't pay.
In the future make sure the bid specifies who pays the sales tax.
Why pay tax on physical service? Not required in my state. Just on products installed, my friend.
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Ray -
I work in PA. The law can be interpreted a couple of ways. If it is repair work, he can charge tax (he almost has to because he will be taxed for it at the end of year) because it can be accounted for in a different way depending on how he does his taxes.
However, if this is a rough-in by a plumbing contractor, he cannot charge tax on labor.
He can on materials, but he has to show you that he is simply passing the sales tax on - for example, T&M billing, labor is $100.00 and materials (that he purchased) were $100.00 plus $6.00 for tax (total of $106.00). He cannot tax you on top of the $106.00.
I would request one of his material invoices to see if he is merely passing the tax on via an itemized value on an invoice, or if he is in fact purchasing materials and paying tax on them, then charging a sales tax on top of that - illegal - can only be taxed once.
Also, someone on here mentioned a 1099. If he is Incorporated, no 1099, but if he is a sole proprietor or LLC, must receive a 1099 after $600.00.
I work in PA. The law can be interpreted a couple of ways. If it is repair work, he can charge tax (he almost has to because he will be taxed for it at the end of year) because it can be accounted for in a different way depending on how he does his taxes.
However, if this is a rough-in by a plumbing contractor, he cannot charge tax on labor.
He can on materials, but he has to show you that he is simply passing the sales tax on - for example, T&M billing, labor is $100.00 and materials (that he purchased) were $100.00 plus $6.00 for tax (total of $106.00). He cannot tax you on top of the $106.00.
I would request one of his material invoices to see if he is merely passing the tax on via an itemized value on an invoice, or if he is in fact purchasing materials and paying tax on them, then charging a sales tax on top of that - illegal - can only be taxed once.
Also, someone on here mentioned a 1099. If he is Incorporated, no 1099, but if he is a sole proprietor or LLC, must receive a 1099 after $600.00.
i did not know that about not needing a 1099 if he is incorporated
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The only companies you need to issue a 1099 to are 1. LLC's; 2. Sole Proprietors; 3. Individuals earning more than $600.00 a year.
If the business is Incorporate or Inc., not necessary to issue a 1099, as there are procedures in place for them to report any payments you made to them for services rendered.
If the business is Incorporate or Inc., not necessary to issue a 1099, as there are procedures in place for them to report any payments you made to them for services rendered.
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Ask MZ, I am sure he knows the the law...
You don't specify in your contract with the sub who is responsible for taxes or that his price includes tax?
Some jobs we do (new commercial) require us to pay sales tax on materials. Many times we are issued a tax exempt certificate from a general contractor that we can use to purchase materials tax exempt and then the gc pays all of the sales tax in the end. Sometimes we are not furnished this certificate and we pay our own taxes.
Regardless of who pays for what should be spelled out in not only his proposal but in YOUR contract. You might even check the construction documents to see if there is any mention in there about how these taxes are to be paid.
It sounds like him deducting the labor tax shows that he is trying to get away with something. This is way hell late in the game to suddenly think about sales tax on materials. This should have been known before a contract was signed. I bet it will be in the future.
Some jobs we do (new commercial) require us to pay sales tax on materials. Many times we are issued a tax exempt certificate from a general contractor that we can use to purchase materials tax exempt and then the gc pays all of the sales tax in the end. Sometimes we are not furnished this certificate and we pay our own taxes.
Regardless of who pays for what should be spelled out in not only his proposal but in YOUR contract. You might even check the construction documents to see if there is any mention in there about how these taxes are to be paid.
It sounds like him deducting the labor tax shows that he is trying to get away with something. This is way hell late in the game to suddenly think about sales tax on materials. This should have been known before a contract was signed. I bet it will be in the future.
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