This article was written by Dick Ginnaty, CPA
If you sell tangible goods in California to non governmental entities who are the end users (i.e. they do not resell the goods) then you are subject to collecting and remitting sales tax to the state, and you will be audited by the State Board of Equalization about every 3 years or so. Unfortunately there can be surprises (as in the negative costly kind) during this process.
Two issues that are often the culprit of the surprise, is in installation of the product and delivery of the product. Both processes can give rise to sales tax liabilities.
Part of the installation fees (if charged) can become taxable if there is modification to the product during the installation. For example, if you are a custom drape or window covering business, and in the installation process you trim, or adjust the window cover in any fashion, a portion of the installation charges will be taxable. So if you are a business where installation is part of the process, and you charge for the service, be aware you may be incurring a sales tax liability associated with a portion of your installation charge.
Likewise, if you deliver your product and charge for delivery, you may be subject to sales tax on the delivery. In general, only businesses that deliver themselves via their own vehicles have to be concerned. Delivery via public transportation services (Fedex etc) are not taxable if the fee charged equals the cost. If the fee exceeds the actual cost then the excess is taxable.
The best advice in this area is to call the State Board of Equalization and ask if there are issues with your type of business. In many cases there are special pamphlets for businesses that have issues which are published, and available to identify the problem areas.
Good luck and here’s hoping it “all adds up” for you.
P.S. If there is any area in accounting or tax that you think needs to be addressed in this column please e-mail me at Ginnatycpa@aol.com and if it is of general interest, I will address it in future column.
