Ian having my water heater replaced. One. Guy is charging sales tax,other is not
Second guy says he pays sales tax when he buys it so he doesn't have to charge tax when he sells it,and there is no tax on labor. Who's right? Thanks
I suspect that as he titled his post "NY sales tax question" that he is in NY.
========================================= MODERATOR'S COMMENT:
It is very normal for people not to read the subject line and just go
straight to the body of each post. But yes, reading the subject line may
have given a clue.
Impossible to give you a direct answer. So... I will explain the general
rule in NY (works the same way in most of the other states that have a
sales tax on tangible personal property).
The seller has the liability to NY for paying the sales tax on tangible
personal property. In practically all cases, the seller passes it on to
you the buyer and the amount shows up on your receipt identified as
sales tax. When a seller fails to pay the state the sales tax due on
sales, the liability shifts to the buyer and the state can come after
the buyer for the "use" tax (an amount equivalent to the sales tax). If
the state does come after the buyer because they can not collect it for
whatever reason from the seller, the burden shifts on you to show that
you paid it. No receipt with the amount.... no proof you paid it.
Sellers have the option of absorbing the sales tax rather than passing
it on to you. Effectively, this means that they quote you the bottom
line price and internally compute the numbers that make the sale plus
sales tax come out to the bottom line. They then remit the calculated
amount to the state. You see this often when someone negotiates a large
purchase like an auto and states that they will buy it for $40K out the
door. If you look at the sales contract for the car, you will see how
the $40K breaks out.
So... one plumber may first quote you a price for the heater plus
install plus sales tax. Another plumber may opt to just quote you the
bottom line. If the receipt from the second plumber does not reflect any
sales tax paid, then you have just absorbed some risk in the
transaction. The risk is that you could become liable if that plumber
does not pay or remit the tax to the state. The risk is probably
minimal if you are dealing with a reputable business.
What is a little different here is that the 2nd guy actually pays the
sales tax when he *buys* the water heater for resale, not when he sells it.
The state is perhaps missing a little bit on the mark-up, if any, but
essentially the tax is still being paid, just in a way that is easier
for both the plumber and customer to deal with.
However, that would be too easy, I suppose. In CA, it seems in this
case you are still supposed to collect/pay sales tax on the final sale,
but then you can deduct the tax previously paid.
"If a purchaser paid sales tax to its supplier for items it purchased
for business or personal use, but resold the items before any taxable
use, the purchaser can take a deduction on its tax return when it
reports the sale. The purchaser may deduct the amount it paid before
sales or use tax was added, under "Cost of Tax-Paid Purchases Resold
Prior to Use" on its sales and use tax return." (CA BOE web site)
There's the rub. The buyer has no idea whether the statement of having
paid the sales tax when the heater was bought is true..... not unless
the plumber produces his receipt showing that it was paid.
Most of the HVAC vendors and plumbing companies I have dealt with over
the years, have reseller certificates and do not pay the sales tax when
they buy tangible property for resale.
The following came to me in an email reply by John Levine
NY also has a capital improvement exception. Most plumbers will
characterize all but the most minor repairs as a capital improvement,
give you a form to sign, and shazam, no sales tax.
As far as I can tell, so long as the work is plausibly a capital
improvement, the state doesn't argue. I ran into this most recently
last month when they replaced the tub and shower in a rental property.
Of course there is a sales tax. The contractor paid sales tax on the
material/property purchased to perform the job. As it is a capital
improvement, there is no requirement for the contractor to collect any
sales tax from the customer. The contractor passes through his expense
for the sales tax in the price quoted. This is probable what happened
with the second plumber who said he had paid the tax and was not going
to charge the customer any additional tax. Under these circumstances,
the contractor can have the customer sign off on the NY form ST-124 or
just use his own records as proof that sales tax need not be collected
from the customer.
All that being said, the issue when dealing with a plumber who is going
to sell you and then install a water heater is that if you don't pay any
sales tax and you don't get a copy of some evidence that the plumber
paid sales tax, you assume some risk if the sales tax was not paid on
Really? Every business I know (including mine) has a resale number
and we don't pay sales tax on stuff we buy for resale. What leads you
to believe that plumbers don't use the resale exemption like every
other business? This is sales tax, not VAT.
Not much of it. A few years back, we got a letter from a guy who'd
done some painting, treated it as a capital improvement, got audited
by the state who decided a lot of his improvements weren't and
collected a big bunch of tax from him. He wrote to his customers
asking us to pay our share of the tax voluntarily, but it was quite
clear he had no recourse if we didn't. We did, he's a nice guy, it
wasn't his fault that he misunderstood (or more likely they moved the
goal posts slightly), and we'd like him to be around for the next time
we need the house painted.
You can't use a reseller certificate to avoid paying the sales tax on
material you are going to treat as capital improvement. Do you really
think New York is going to provide a free ride on taxes? That's not to
say that some vendors are attempting to do that........
From NY Dept. of Taxation and Finance:
Purchases of materials
Building materials and other tangible personal property purchased for
capital improvement work are taxable, whether purchased by a contractor,
subcontractor, repairman (hereafter contractor), or homeowner. The sales
tax paid by contractors becomes an expense that can be passed through to
the customer as part of the overall charge for the capital improvement.
Contractors do not normally sell building materials to customers without
installation and, therefore, cannot use Form ST-120, Resale Certificate,
to make purchases of building materials exempt from tax.
However, in certain circumstances, contractors can use Form ST-120.1,
Contractor Exempt Purchase Certificate, to make purchases exempt from
sales tax. For example, a contractor is hired to build a house, and the
contract requires the contractor to provide certain freestanding
appliances such as a refrigerator, washer, and dryer. The installation
of these appliances does not qualify as a capital improvement, since
freestanding appliances do not become part of the real property, as do
building materials. The contractor can use Form ST-120.1 to purchase the
appliances exempt from sales tax. However, the contractor must collect
sales tax on the charge to the customer for the appliances.
What is this NYS exemption for "capital improvements"? If it is a capital
improvement, sales tax must be paid (by anyone in the chain) for the
tangible items, but NOT for labor.
If it is NOT a capital improvement, i.e. an appliance installation, sales
tax must be paid for both the tangible item AND the labor.
It took some digging through ambiguous NYS information to figure this out.
Other posters have addressed the specific issue regarding the water heater:
sales tax must be paid either by the contactor (who will pass it on to you)
or by you.