# Virginia Sales Tax...?



## SASR

When is it appropriate to charge and collect sales tax?

To my knowledge, one would charge sales tax to the end user. However, we just had a situation where the end user provided the material, we manipulated it, and subsequently returned it. Hence, it was labor only...Should sales tax be charged?

I have scoured the interwebs, but finding information on the VA tax site is....well....not easy. Any sources would be appreciated!!


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## naptown CR

nope


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## tinner666

You only charge sales tax when buying and selling merchandise is a part of your business. My roofing and Sauce businesses are seperate entities. I charge and report/pay sales taxes with my retail sales.


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## Century Man

*I'm a contractor who specializes in home remodeling. Since I have to pay sales tax on the supplies I purchase for each job, can I then charge my clients sales tax on those materials?*
No. As a real estate contractor, you are considered to be the user of the materials under Virginia law. Therefore, you must pay sales tax on your purchases of building supplies. The law does not allow you to charge your clients sales tax on the materials for which you have already paid the tax.

This information was aquired from this web address.
http://www.tax.virginia.gov/site.cfm?alias=businessfaq2


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## Aframe

In General



SASR said:


> When is it appropriate to charge and collect sales tax?
> *When you purchase materials from a wholesaler/ distributor and do not pay a sales tax, you would collect and then forward that tax to the state *
> 
> 
> To my knowledge, one would charge sales tax to the end user. However, we just had a situation where the end user provided the material, we manipulated it, and subsequently returned it. Hence, it was labor only...Should sales tax be charged?
> *No, unless VA has a service tax, and that would only be on your labor
> *
> I have scoured the interwebs, but finding information on the VA tax site is....well....not easy. Any sources would be appreciated!!


re: Century Man, right on

You would have the tax you paid on materials you supply included in your markup. Not as a separate charge


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## P.Williams

I'm confused. You mean we can't include the tax we pay on materials on our bills to customers when working T&M or Cost+, and that we're supposed to incorporate these taxes into our profit and overhead rates? Or that we just can't list it as "tax" on bills to customer, or something even different?


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## ottagosoon

You can write your bill any way you want.

Plywood $20.00
sales tax $ 1.00
Labor $20.00
TOTAL $41.00

or
Plywood $21.00
Labor $20.00
TOTAL $41.00

Just remember if you buy something on line and that company did not charge you sales tax, remember to send the amount of tax you would have paid into your state. It is a down economy and the state needs your money. sorry their money. :w00t:


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## P.Williams

I'm still confused. Ottagosoon's answers doesn't seem to jive with the link Century Man gave -- like, from the website:

*I'm a contractor who specializes in home remodeling. Since I have to pay sales tax on the supplies I purchase for each job, can I then charge my clients sales tax on those materials?

No. As a real estate contractor, you are considered to be the user of the materials under Virginia law. Therefore, you must pay sales tax on your purchases of building supplies. The law does not allow you to charge your clients sales tax on the materials for which you have already paid the tax.*

Maybe I'm not the sharpest knife in the drawer, but what does that mean for Cost Plus and T&M?


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## Aframe

ottagosoon said:


> You can write your bill any way you want.
> 
> Plywood $20.00
> sales tax $ 1.00
> Labor $20.00
> TOTAL $41.00
> 
> or
> Plywood $21.00
> Labor $20.00
> TOTAL $41.00


As ottagosoon wrote, you would write up your bill to customer like that


What Century Mans link is saying is that "you" do not add sales tax charges to your marked up material cost to your customer.

So not like this

Material Plywood $23.00 ($20.00+10% MU ($2) +$1. tax you paid)
Tax on material 5% 1.15 
Labor 1 hr 20.00

Total $44.15 

With Cost Plus and T&M, it's not that you are not passing on the tax you paid for the materials, you are not additionally taxing the marked up price for the materials witch included the tax u you paid. 

With T&M, if you don't mark up materials, what ever you paid with tax is what you bill customer.

If you were charging your customer a tax on the marked up price, they would be paying the tax twice.


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## P.Williams

That's cool, but when in Virginia (not Taxachusetts or yonder) does a contractor charge sales tax?


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## tinner666

A sales tax is added onto charges for material by the state.

If I pay $950.00 for materials, + $50.00 in tax, I charge $1,000.00 for materials + 20% markup, ie $1,200.00.

The tax I pay is included in the material charge. Pure and simple.
What do you want to do, add 4.5% tax to the $1,200.00? There isn't even a tax form for that.


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## P.Williams

Thanks tinner666. What's got my mind reelin' is the state's offical description linked by Century Man:

*I'm a contractor who specializes in home remodeling. Since I have to pay sales tax on the supplies I purchase for each job, can I then charge my clients sales tax on those materials?

No. As a real estate contractor, you are considered to be the user of the materials under Virginia law. Therefore, you must pay sales tax on your purchases of building supplies. The law does not allow you to charge your clients sales tax on the materials for which you have already paid the tax.*

What Virginia builder charges sales tax on anything (labor, materials)? This info also makes it seem like the sales tax can't be passed along. From looking around the internet, I think different states operate under different rules.


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## tinner666

Our cost is our cost, including sales tax. It can not be singled out and taxed again.


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## JamesKB2

It sounds like it's the same as it is in MI. When you buy the materials from your supplier, your supplier charges you sales tax on the supplies. This final fee for materials is your cost basis for them.

Then, you install said materials. YOU DON"T COLLECT SALES TAX on them. Since they are being "used" or installed, you're not a retailer. They're supplies to you or the job, not items sold to the customer (like cash and carry).

You charge the customer your cost for the supplies (including the tax you paid) and your markup. You're not a retailer, your a contractor. (installed sales)


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## Chris Johnson

Could you guys imagine if there was sales tax in construction? All these threads about illegals and unlicensed guys would now be another few % points cheaper since they would avoid that tax as well.

Mind you the gov't of Canada tried to combat it the GST, I wonder how that's working out for them?


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## Magnettica

tinner666 said:


> You only charge sales tax when buying and selling merchandise is a part of your business. My roofing and Sauce businesses are seperate entities. I charge and report/pay sales taxes with my retail sales.



This topic has piqued my interest since I'm about to start my own EC business. 

So if I sell a 200 amp upgrade and materials for the job are say $900.00, I've already paid sales tax to the supplier, am I responsible for paying sales tax to the state now on that $900? 

I know this thread is Va, but I'm in NJ.


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## Aframe

Magnettica, you paid the tax when you bought it, that's it


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## JohnCarpenter

In Texas, if you lump sum the invoice to the customer, you pay sales tax when you buy it. The tax is part of cost.

If you itemize the material on you invoice to the customer, you charge sales tax and buy it resale.

Never charge for the labor part.

It's all in how you do your books.


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## TxElectrician

JohnCarpenter said:


> In Texas, if you lump sum the invoice to the customer, you pay sales tax when you buy it. The tax is part of cost.
> 
> If you itemize the material on you invoice to the customer, you charge sales tax and buy it resale.
> 
> Never charge for the labor part.
> 
> It's all in how you do your books.


 
It is my understanding this is correct for residential and NEW commercial. However for existing commercial, sales tax is charged on material and labor.


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## Treeandland

The tax man came and visited me after I had been going for a couple years. He told me if I was buying plant and landscape materials and providing to the customer I needed to buy them tax exempt, seperate the materials on my invoice, showing materials, tax and labor and then send them a report/pay the tax each quarter.
I settled for buying some of my stuff like that but never breaking down my invoices. They wanted to know if I marked up the materials and tax me on the marked up price too! I just told them I make my money on the labor:whistling

Supposedly a new law was recently passed where landscapers don't need to report anymore and can go back to just paying the tax at the supplier. I still have a couple accounts that I want to change back to this but haven't had a chance to investigate it fully.


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## Virginia Built

*Taxed again?*



tinner666 said:


> Our cost is our cost, including sales tax. It can not be singled out and taxed again.


not yet.


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## sarton2001

*wholesale purchase of materials....*



tinner666 said:


> A sales tax is added onto charges for material by the state.
> 
> If I pay $950.00 for materials, + $50.00 in tax, I charge $1,000.00 for materials + 20% markup, ie $1,200.00.
> 
> The tax I pay is included in the material charge. Pure and simple.
> What do you want to do, add 4.5% tax to the $1,200.00? There isn't even a tax form for that.


I understand: As a VA Plumbing, HVAC and Electrical Contractor we are not allowed to collect sales tax from our customers on anything installed as it becomes recognizable as Real Property and we are considered the users of the material. We are responsible for paying the sales tax. 

Our Setup: We are setup to pay sales tax at the time of purchasing our material. Some of our material is purchased retail while other is purchased wholesale. Regardless of the manner in which it is purchased, we do not charge our customers sales tax but we do consider it part of our overhead and recover the costs in our material markup, as follows:

Scenario 1: We purchase a commode at retail price and pay state sales tax on the retail price at time of purchase. We charge the customer for the service call and then for the commode installed (retail price on commode + retail tax we paid + our material markup). Nothing more needs to be done as the sales tax has already been paid on the retail price.

Scenario 2: We purchase a commode at wholesale price and pay state sales tax on the wholesale price at the time of purchase. We charge the customer for the service call and then for the commode that we installed (retail price on commode (which is our markup) + wholesale tax we paid). The retail price is now are markup - so does this mean we are not liable for sales tax on the retail price?

My concerns: It seems to me that the state is missing out on some tax money if we only pay sales tax on the wholesale amount. Are we supposed to track and pay sales tax on the retail amount or is it that our markup is not considered taxable?

Any advice would be greatly appreciated.


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## gene2

I contract & service HVAC in Va. When we started, my accountant insisted on collecting sales tax on materials for service invoices as we mark the materials up. What a boondoggle that was. I was always being dunned for penalties & interest no matter how we did the filing. As we understand the tax code, if we pay tax on equipment & materials for a contract job, no further collection for sales tax is needed. Now we officially recognize any service call as a contract job. Many of our clients insist on material cost breakdown but it is recorded in our books only as a contract project total. It has greatly simplified our bookeeping and any markup on materials we consider non-taxable as the markup covers overhead & potential warranty costs just like a contract. Our accountant & us want proper filing with no problem but the Va. Dept. of Vexation has no consistancy in their calculations, we just got dunned for a 2007 witholding discrepancy that we won't detail, just pay it or else. No one knows how they come up with their numbers.


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## Paul Masters

*Virginia Treatment of Contractors for Sales Tax*

With the disclaimer below, we recently advised on this issue. Believe it or not, the Virginia Tax Commissioner seems to agree. The contractor is the consumer when providing services connected with the installation of a fixture onto real property. The only tax is that you pay when you first purchase the materials:

>When the Taxpayer sells and installs integrated fuel delivery systems or component parts of such systems, the transaction is for real property construction or installation services, the charge for which is not taxable. In such instances, the Taxpayer is liable for the sales or use tax based on the cost price of the component parts of such systems.

Virginia Public Document Ruling No. 00-65, 04/26/2000

There is also the recent case in which a contractor was found to be a retailer even though he also provided services. So a contractor in Virginia can have a dual role. So be careful.

Ruling No. 11-69

(I'd link to them but can't, but Googling should get you there. If you want the links, just email me.)



sarton2001 said:


> Scenario 2: We purchase a commode at wholesale price and pay state sales tax on the wholesale price at the time of purchase. We charge the customer for the service call and then for the commode that we installed (retail price on commode (which is our markup) + wholesale tax we paid). The retail price is now are markup - so does this mean we are not liable for sales tax on the retail price?
> 
> My concerns: It seems to me that the state is missing out on some tax money if we only pay sales tax on the wholesale amount. Are we supposed to track and pay sales tax on the retail amount or is it that our markup is not considered taxable?
> 
> Any advice would be greatly appreciated.


This post is not intended to and does not establish any attorney-client relationship between the user and the author or his law firm. I am trying to provide information helpful to consumers, including legal information. However, you cannot rely on this information as legal advice. This is general information; not advertising, solicitation, or legal advice. If you have a legal question, please contact a lawyer to protect yourself. Do not rely on anything you read here, especially in lieu of contacting a lawyer directly. Every case is different, and every case turns on its own individual facts.

The links contained in this web site are for informational purposes only and do not necessarily express the views of the members of this firm.


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## alliance9106

*Use tax paid, what about sales tax on resale items?*

We are a manufacturer (dual installation and resale), and we have heard of a different a way to process "use tax" costs, but aren't sure of the success (or legality) of such a method.

We buy raw materials tax exempt, and (since we work primarily in "resale") we only pay "use tax" when we pull materials out for installation projects. 

When we have materials galvanized, we only pay "use tax" when we know that we are going to install the material. In that case, we have to code those vendor's invoices to confirm the project, type of project (install/resale), and our invoice number.

This new way of processing "use tax" would mean that we would pay "use tax" on all raw materials (regardless of the project), and that we would pay "use tax" on all galvanizing invoices (regardless of the project). The premise is that whatever we would pay in "use tax", we could deduct from the sales tax liability that we collected (from our resale sales) and normally pay to the state. Hmmmm.... Not sure...

I've heard about being able to deduct "use tax" from Virginia if you paid the tax to another state...I'm not to sure about this...

I "chatted" with the Department of Taxation, and they said that how we processed 'use tax" was correct, and that we couldn't get credits if we ended up using our "pre-paid" (taxed) raw material for resale projects unless we sent in a revised sales tax return. FUN..FUN..FUN...

Anybody familiar with paying "use tax" on all raw materials? What happens when you have a resale sale? Do you pay the collected sales tax (for the resale purchase) and eat what you paid in "use tax" for the raw materials? Very interested in your thoughts.


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## Paul Masters

Virginia taxes sales based on "retail" sales only, which is why you aren't paying sales tax for goods that you further process. As you seem to be aware, when a contractor uses a building material to perform a construction contract, he must pay "use tax" for that material.

I'm not sure why you would start paying use tax on all purchases of raw material. 

Virginia offers a credit via § 58.1-611 for use tax paid in another state, but that's for out-of-state purchases. 

Generally, a "reseller" should never have to pay tax. They claim a resale exemption for the good purchased, then "resale" it to someone else who then pays the tax (or offers an exemption from tax, e.g., another resale).

Note: This is just general advice based on very general facts, and not the establishment of an attorney-client relationship.


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## JBM

To charge sales tax you would need to be tax exempt when purchasing items and therefore charging a sales tax to the end customer. 

Dont charge sales tax unless you are operating a STORE. Do not ever mess up with paying your sales tax, states and the feds see it as stealing and they will shut you down in a heartbeat.


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## Paul Masters

I'm not sure about Massachusetts, but whether or not you are "tax exempt" does not determine if you must collect sales tax in Virginia, or any states in the South that I'm familiar with. The determination is made on a transaction basis, not an entity basis (if that makes sense). There are times where sales tax is not due even when it would be regularly, based on your "class of entity," e.g., a garage sale is generally not taxed because it's not in the ordinary course of business, while others cannot get a "resale exemption" unless such resales DO occur in the ordinary course of business.

So, really, it's a case by case and state by state issue. Also, enforcement is tough to deal with. They seize and take assets. Where they are most aggressive, however, is when you COLLECT tax but do not remit it to the state. That is stealing because it's not your money. But when a business fails to properly follow the law and collect sales tax, enforcement is generally not called in. Rather, it's worked out at the audit/hearing level to try and get the business operating correctly, rather than shut it down.

That's been my experience while dealing with enforcement agencies, at least.




JBM said:


> To charge sales tax you would need to be tax exempt when purchasing items and therefore charging a sales tax to the end customer.
> 
> Dont charge sales tax unless you are operating a STORE. Do not ever mess up with paying your sales tax, states and the feds see it as stealing and they will shut you down in a heartbeat.


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