Question about production sharing?

[Damon Nabors]

What do most of you do about sales tax on Production sharing. Is labor considered for resale. I guess if someone is in the Cabinet business and has a sales tax certificate and we put it on file, we would be ok. I am going to check with our State Sales Tax Department Monday, but I was just curious what others are doing. I know on my own personal jobs, as long as I pay sales tax on my materials, I do not have to collect sales tax from my customer as long as the cabinetry is a capital improvement to the property and is not free standing.

Also curious about how many Production sharing jobs per month are some of you averaging? I have had more interest from non-ecab customers than I have e-cab customers. My problem with that is, they want me to draw it up. I guess I could charge a per hour rate to do the computer drawing, but some of these people out there think you can woop up a drawing in an hour or two and be done.

Thanks,
Damon

[Brian Shannon]

Damon,

Sometimes I think we sould work at McDonald's to make more $. I, too just pay tax on my mt'ls so I don't have to mess with the whole resale thing. Production Sharing is Labor so I would not think that tax would be charged. I am glad you brought this up. It is kind of a grey area as far as taxing custom cabinetry. I would like to think it is all a service(labor) and as long as we pay our tax on materials, we are covered. I do know someone that was audited and did his taxes this way. All was O.K. with Uncle Sam. I would like to hear from others about this topic.

[DanEpps]

It depends on your state tax laws...some states tax labor and services while others do not.

In most (if not all) states, however, you do not have to collect any sales tax on products that are ordered from outside the state then shipped outside the state unless you have a physical presence in the other state.

In addition, some states require a use tax on materials used to build a product, even though you may have paid sales tax on the materials when you purchased them.

Tax law is a complicated beast (and usually unnecessarily so) that is best explained by your CPA. If you follow your CPA's advice and he (or she) is wrong, you usually do not stand to pay any penalties, just unreported taxes.

[Michael S Murray]

Hey Damon,
Take Dans advice and talk to a accountant on this. 5 yrs ago I was audited for sales tax, thought I was doing everything correct but still cost me $3000 buckaroonies. Changed accountants!! Its way more complicated than you can beleive.

[DanEpps]

And make sure they have an audit protection policy that keeps you from having to pay any penalty because of their advice!!!

[Joe Dusel]

In California it works this way. If you take materials and add value to them by milling or whatever you now have something that has a new value. If you sell this to someone you need to collect sales tax on this new value unless the buyer has a reseller's permit applicable to the product you are selling. So, if a home owner comes in an has you mill up some material that you purchase without sales tax you collect the tax on the total amount. If you paid the sales tax on the materials, or if the client provides the materials, you just tax them on the labor. It gets complicated if you are installing cabinets. Then, if more than 10% of the cost is for installation you don't charge the client for the tax on the entire project, but you do need to have either paid the tax on the materials up front, or you need to keep track of what you bought and send the Board of Equalization a check for the tax.

if I'm making furniture I need to charge sales tax on anything I sell within the state.

It's a painful process...


Joe