[Kelly Painting]

recently did my taxes, and was told from my accountant that when I list the materials on an invoice as a whole or broken down, that I am representing myself as a reseller of goods in which the I.R.S would expect tax from those materials payed by me.

Is this true?..what are your thoughts?

 

[vermontpainter]

Not sure at what point the IRS sees your actual invoices...audit? Its your accountants job to keep you in the safe harbor.

 

[NEPS.US]

recently did my taxes, and was told from my accountant that when I list the materials on an invoice as a whole or broken down, that I am representing myself as a reseller of goods in which the I.R.S would expect tax from those materials payed by me.

Is this true?..what are your thoughts?

Yes ....don't do that anymore.

 

[MAK-Deco]

Yes I agree that is true. that's why unless you are required to list them separately, then don't.
We are to sell the service as a total package including materials. I know there are states that require the breakdown if I not mistaken.

 

[KCT]

I'm confused. Isn't it a question of whether you are a "vendor" or not? If you're just buying materials and providing them to the customer at cost, where is the problem? I could understand the problem if you were marking them up but didn't have a vendor's license.

 

[NEPS.US]

I'm confused. Isn't it a question of whether you are a "vendor" or not? If you're just buying materials and providing them to the customer at cost, where is the problem? I could understand the problem if you were marking them up but didn't have a vendor's license.

Are you giving your cutomers materials for cost?

 

[plainpainter]

In my estimates I write that materials will be furnished to complete the project - and give them one price. I never ever separate materials from labor. Number one - it makes more work for you to collect taxes now, and secondly, homeowners will see your markup, and thirdly - over estimating materials with markup - really saves my butt alot when I really underbid labor, which happens alot - if you separate your labor, which is fixed-cost, and materials - that's it you're screwed - absolutely no 'buffer' is built into your estimates to help out.

 

[AALory]

Thank God someone else is honest about bidding labor incorrectly! I feel better knowing I am not the only one. It has been a constant pain trying to figure out effective, consistent formulas. Practice makes perfect right?

Regarding the accounting of materials, I offered countless times to present homeowners with the receipts of all materials used, full disclosure. Not one has ever been interested. And in Vermont, never have I had an sales tax issue with the IRS or my accountant.

 

[KCT]

Are you giving your cutomers materials for cost?

I am. Why should I make money off of that? I'm not a vendor. I charge more labor to cover the time ordering, pick-up, and delivery of materials.

 

[ProWallGuy]

I am. Why should I make money off of that? I'm not a vendor. I charge more labor to cover the time ordering, pick-up, and delivery of materials.

Marking up materials is part of Business 101. Every legitimate business does it. Do you think you pay cost for that new muffler on your truck, or for the filling material a dentist uses? :no:

 

[plainpainter]

I am. Why should I make money off of that? I'm not a vendor. I charge more labor to cover the time ordering, pick-up, and delivery of materials.

You are providing a service, that is why you mark up - and anyways that labor you include for drive time to purchase is your markup, so you are doing it anyways.

 

[bikerboy]

I am. Why should I make money off of that? I'm not a vendor. I charge more labor to cover the time ordering, pick-up, and delivery of materials.

If you charge more labor for your effort, then you are adding to the cost of materials. You are just adding the "extra" to another column and "making money off that".
It is not a bad thing to make a profit or to profit from your discounted material prices. You earned those reduced prices. If you go to a bar, do you not think that the bar adds to the price of a beer? Do you get a car at cost? (you don't, belive me on this one) A steak? It is an accepted business practice. (and one you are doing, just computing it in a different manner)

 

[premierpainter]

What your doing is know as "Double Taxation of Goods". You pay sales tax in the store. Then you turn and charge the customer tax on materials as well. Materials need to be in a different line showing the costs of goods. Our labor is taxed, which is sent every quarter to the state. Our materials are not taxed on our Invoices. If you apply for a tax exempt status, you can purchase materials from the store tax free. Then YOU are responsible for sending in your taxes that would have been charged by the store. You are better off not applying tax to your materials

 

[MAK-Deco]

for those who do schedule "C"'s I believe the line for cost of goods sold is Part 1 line 4 in which that number comes from Line 42 in Part 3

 

[slickshift]

What your doing is know as "Double Taxation of Goods". You pay sales tax in the store. Then you turn and charge the customer tax on materials as well....

This is not entirely accurate
I realize this could vary from state to state, but it's not a double taxation of any kind

The contractor pays the Sales And Use Tax on the materials, as the contractor is considered the Consumer/User
If the contractor passes along the cost of the Sales And Use Tax to his/her client, there is no "double" taxation

However, if you are listing your materials separately, and "collecting" Sales And Use Tax on them, and not handing that money over to the state, you could have issues with the state
In that case you should have a resellers permit and not pay Sales And Use tax on the items in the first place

But in any state I've worked in, the contractor is considered the end user, and can absolutely collect from the customers for what the paint supplier collected from him/her for the state on the materials purchase

The invoice would read
Materials: $11

Rather than
Materials: $10
State Sales Tax: $1
Total: $11

 

[slickshift]

...was told from my accountant that when I list the materials on an invoice as a whole or broken down, that I am representing myself as a reseller of goods in which the I.R.S would expect tax from those materials payed by me.

Is this true?..

No
Your accountant is an idiot
The IRS doesn't collect state sales/use tax

Seriously where'd you find this one

A tax on the profit maybe, but that's another thing and determined by other methods

I think he may have a point that the State may take a second look at it
But again, you're covered as you are merely collecting on what you already paid

 

[daArch]

As has been said, this issue varies from state to state due to sales tax.

The feds will be only be interested in the profit if you "resell" the item.

Since the original poster and a few responders are from Mass, I will only relate the facts as they pertain here.

If you line item your supplies on your invoices and add any kind of mark-up, you are a reseller and owe sales tax. All legal. It would behoove you to obtain a state tax number, not pay the sales tax at your point of purchase, and then add the 5% on the price you charge the customer. DO NOT TRY TO AVOID PAYING THE STATE THE TAXES YOU HAVE COLLECTED, you will buy yourself nothing but a heap of trouble.

If you do not want to bother with sales tax collection, invoice the job as a whole - do not separate labor and supplies AT ALL.

I did recently need to invoice with separate lines for labor and supplies (because of WC insurance). I listed the price I paid for EACH item, the tax paid at point of purchase, and then the total. That kind of detail is also legal. It proves I only passed on what I paid and indicated the state had already received its blood money.

Personally, I do not need to make money collecting taxes for any gov't. I am not in the retail business. My paper work is enough of a burden without collecting sales tax.

 

[premierpainter]

We are in NJ. If the job is not new, a church or a Capital Improvement, sale tax is charged to the labor. We don't charge sales tax on materials. We are required to send in taxes collected every 1/4 or month- however you have it set up.

 

[MAK-Deco]

We are in NJ. If the job is not new, a church or a Capital Improvement, sale tax is charged to the labor. We don't charge sales tax on materials. We are required to send in taxes collected every 1/4 or month- however you have it set up.

So NJ has a sales tax on labor? do you also have an income tax on labor? or are they one in the same?

 

[daArch]

We are in NJ. If the job is not new, a church or a Capital Improvement, sale tax is charged to the labor. We don't charge sales tax on materials. We are required to send in taxes collected every 1/4 or month- however you have it set up.

and they call THIS state TAXachusetts !!! ???

NJ, from I hear, is very repressive.