DoryJM Posted February 1, 2011 Report Share Posted February 1, 2011 We were up til midnight last night getting our sales tax return ready to file with CA. Dennis brought up the point that basically what I do is a service, so why do I charge tax? So my question: What do the rest of you do that live in CA? Charge tax or not? Link to comment Share on other sites More sharing options...
quiltmonkey Posted February 1, 2011 Report Share Posted February 1, 2011 Hey Dory, I am not in CA, but I was curious (why? I don't know...) so I did some Googling on California law for taxing services and from most everything I read, your specific type of "service" (which is basically doing something to someone else's personal property) I don't believe should be taxed. Now, don't take my word as gospel because I don't play a lawyer on TV. Link to comment Share on other sites More sharing options...
mswings Posted February 1, 2011 Report Share Posted February 1, 2011 I was wondering the same thing. I thought you paid sales tax on things like thread and batting but not on the quilting. Link to comment Share on other sites More sharing options...
DoryJM Posted February 1, 2011 Author Report Share Posted February 1, 2011 Thanks Ms. Shana, Esq., and Virginia. That was Dennis take too. Guess I'll call the Franchise Tax Board and if they feel the same way, no more tax and I will be documenting my call. CA is so broke, they'll probably tell me I have to charge double!! Link to comment Share on other sites More sharing options...
fineseams Posted February 1, 2011 Report Share Posted February 1, 2011 I have been investigating that question, thinking that when I get a bit better I might start doing some quilting for money, and it would be nice to have a resellers permit so I could buy supplies wholesale. A friend who is a professional longarmer tells me that in CA you do have to charge sales tax, as CA classifies quilting as manufacturing. Here is a FAQ from the State Board of Equalization that implies that you should charge sales tax if you quilt a quilt, whether or not you supply the backing and batting, etc. "What is meant by ordinarily subject to sales tax? In general, retail sales of tangible personal property in California are subject to sales tax. Examples of tangible personal property include such items as furniture, giftware, toys, antiques, clothing, and so forth. In addition, some service and labor costs are taxable if they result in the creation of tangible personal property. For example, if you make a ring for a specific customer, you are creating tangible personal property. Therefore, the total amount you charge for the ring (including the charge for labor) would be taxable. This would also be the case if the customer provided the materials for making the ring. However, labor costs for making repairs (resetting a diamond, for example) are not taxable since they do not result in the creation of tangible personal property. You are only repairing or reconditioning existing property. Likewise, labor charges to install or apply property which has been sold is not ordinarily subject to sales tax (note: the labor charge should be stated separately on the bill). There are many rules governing what is taxable. You are encouraged to call the Board's Information Center 800-400-7115 or contact your nearest Board office for information on what is taxable for your business." Link to comment Share on other sites More sharing options...
srichardson Posted February 1, 2011 Report Share Posted February 1, 2011 Dory, I don't have a business but work on the basis that if you can't eat it it's taxable in California! Sue Link to comment Share on other sites More sharing options...
DoryJM Posted February 1, 2011 Author Report Share Posted February 1, 2011 Wow, Bonnie, you really have done some research. Thanks and thanks for the phone #. I will call them and report on their opinion. Link to comment Share on other sites More sharing options...
Oma Posted February 1, 2011 Report Share Posted February 1, 2011 Good question. I agree with Sue about if you can't eat it it's taxable in CA, but even that is iffy because when we eat in a restaurant...we are charged taxes on the bill. LOL. Link to comment Share on other sites More sharing options...
Hitomi Posted February 1, 2011 Report Share Posted February 1, 2011 In Hawaii, we get taxed on everything. Food, service, groceries, doctor etc. I have to pay taxes on the income I make, so I definitely charge a 4% tax added to my service. I have to pay it regardless, so I pass it on to the customers. Link to comment Share on other sites More sharing options...
ffq-lar Posted February 1, 2011 Report Share Posted February 1, 2011 Hi Dory-- I read your post as saying--yes you are charging sales tax, and you are wondering if you should be. It makes me grin because sooo many with home businesses try to get around the sales tax payment by taking off the tax if the customer pays cash! (I have had numerous customers ask me for this special "discount" because a local longarmer has this posted in her studio--"8.7 % discount for cash"! How blatant is that?!) IF you collected it, it would be fraud if you did not then pass it along to the gov't. But if you don't need to because you are a service instead of manufacturing--great. When you applied for your business license, what classification did you use? I quilting CPA who taught a business class when I first started recommended manufacturing as my classification but it would depend on your state's definition. I will tell you, I did not have to pay Washington State sales tax on the Bliss because manufacturing machinery and upgrades are exempt. If I was a service, the exemption would not apply. Are you confused yet? I guess it's better to collect it and pass it on than have to take it out of the profits after the fact! Link to comment Share on other sites More sharing options...
SandraG Posted February 2, 2011 Report Share Posted February 2, 2011 I had this problem in Louisiana. I finally called the state. Tax is not charged on a service unless it involves changing moving parts i.e. repair person or mechanic. So here, a mechanic charges tax on service but not a quilter. Link to comment Share on other sites More sharing options...
linsq1 Posted February 2, 2011 Report Share Posted February 2, 2011 Hi Dory! This past year, I checked with the California Board of Equalizations and talked with one of their "tax experts" -- Julia. I explained what we do as longarmers and asked if we needed to charge sales tax on the quilting labor portion. I was advised that we have to do this, according to the BOE publication 108, section 1526. I was advised that "fabrication labor" is a taxable entity if we do labor to change a top and back to ultimately manufacture a quilt. We are technically fabricating a new product. The only time we don't charge tax is if we are repairing a quilt that has already been made. It was disappointing news to us and to our clients. However, as was stated above, when you live in California, if you can't eat it, it's taxed. Too bad, because it's a lot of work, huh? Blessings, Lin Squires Link to comment Share on other sites More sharing options...
quiltmonkey Posted February 2, 2011 Report Share Posted February 2, 2011 Originally posted by fineseams A friend who is a professional longarmer tells me that in CA you do have to charge sales tax..... not to be confused... But what Dory is asking if she needs to charge tax on "services" which is separate from "sales" and I think that No she does not need to charge tax on "services" for her specific defined "service" she is doing--- which is quilting a quilt that someone else owns--- Dory is providing a service to that quilt, not buying or selling an item (e.g. a quilt) So she should not charge a "sales" tax for a "service" -- which is quilting together someone else's personal property.... No exchange of tangible "goods" is ocurring. So the answer (I believe) is No... she should not charge her customers a "sales" tax for a "service" she is providing. Remember that "sales" is a completely separate thing than "services" -- apples and oranges. From reading the Internet web sites last night, I got the impression that yes, California already taxes their citizens to death, so why bombard them with over taxation with certain specific services? Last night, I also read the web site that Bonnie is referring to. There are lots of various scenarios to taxes, so just to be sure, I would definitely get clarification from a CPA or tax attorney in California. Link to comment Share on other sites More sharing options...
quiltmonkey Posted February 2, 2011 Report Share Posted February 2, 2011 This is an interesting discussion and surely we will learn a lot from it. Originally posted by linsq1 ...... I was advised that "fabrication labor" is a taxable entity if we do labor to change a top and back to ultimately manufacture a quilt. We are technically fabricating a new product. I think that you are "fabricating a new product" for resale-- you are not a factory making tires for an automobile, you are not a factory making bricks for a house, you are not a factory weaving cotton together into bolts of fabric creating a "product' for sale. You are not a factory in China mass producing those quilts bed covers that will be sold at WalMart or JC Penny. What you are doing is quilting services on a product (e.g. a quilt top) that someone else (your customer) has already created. No doubt the manufacturing company has already been taxed for its "fabrication" of that product that will ultimately be "sold" ...... I think 'labor' and "services" can be confused. I provide "services" or options to a product that is already created by someone else. Now, here's the kicker... the person that owns the quilt that Dory quilted for her... if that person chooses to sell that quilt to someone then, YES that person should charge SALES tax on the sale of that quilt. Now remember, every state's tax laws are different so you need to follow according to your state you live in. Link to comment Share on other sites More sharing options...
ffq-lar Posted February 2, 2011 Report Share Posted February 2, 2011 Where's the smilie with the eyes rolling around and the tongue hanging out?!! I'm so confused!! As far as services--a service is like getting your nails or hair done, dog groomed, lawn mowed, doctor's visit, massage,etc. If you take a manufactured product like sheet metal, wood, or fabric and ALTER it into another item (build a table, make a metal sign, or turn the fabric into a quilt) that is considered manufacturing around these parts. (State of Washington and usually state of confusion!) A service is performed on an person/place/thing. Manufacturing involves altering a tangible item and transforming into something else. (I suppose if you saw my hair before and after, you could build a case for "manufacturing"!!!! It's definitely "something else" when they finish with me!) Link to comment Share on other sites More sharing options...
quiltmonkey Posted February 2, 2011 Report Share Posted February 2, 2011 LOL! LINDA!! I've personally met you and your hair is fabulous and you are a beauty. Not to mention super wicked smart!! I respect your always perfect and right on the money wisdom!! There is definitely a fine line that is very fuzzy on this topic. I would consider manufacturing like cutting lumber up to build a home. I guess my main point is... "sales" versus "services" and Califorina has both. So, getting back to Dory's original question. Should she be charging SALES tax for a SERVICE? She is not "selling" anything (unless she sells a roll of batting, then yeah that should be taxed), so therefore she should not be charging her customers "sales" tax.... She is quilting a quilt--putting pretty thread designs all over the top, which, IMHO is a "service" she offers to people that want to commission her to do so. Now, that said,,, if California requires you to charge a manufacturing tax, on top of a sales tax and on top of a service tax... oh goodness gracious!!! Link to comment Share on other sites More sharing options...
LauraJ Posted February 2, 2011 Report Share Posted February 2, 2011 Yup, in California it's a "fabrication" tax. No quilter in my area charges taxes on their services - not one. Do they know about it - I don't know. I'm going to pay my taxes like I always have. Would rather have the business than lose it to charging the fabrication tax so I'll have to calculate when it's due In a year - I'll probably add the tax to my services but since I'm new I just can't do it right now - I'd lose customers! What's interesting is anyone who takes anything and fabricates it to something else needs to charge tax - seamstresses too. They don't in my area. We're in a world of hurt in California and I don't mind paying taxes - I just hope they get rid of all the dross and drang that isn't necessary in the budget. Link to comment Share on other sites More sharing options...
Johnmach Posted February 2, 2011 Report Share Posted February 2, 2011 Bonnie is correct in her definition. Per SBE, if you take a quilt top, batting, and a back, and put them together, you are producing a NEW item, a quilt, from components (the top, back,and batting). Unfortunately, the same rules apply in the embroidery / monogramming trade: if I take a new, unworn, jacket and put designs or lettering on it, it is taxable. If I ADD a design or lettering to a used garment, it is non-taxable. I have gone round and round with SBE for 25 years, and their definition has not changed in that time. Our tax attorney and accountant have both advised us to collect on everything because WE have to prove why we did not charge tax in any audit. John Link to comment Share on other sites More sharing options...
Corey Posted February 2, 2011 Report Share Posted February 2, 2011 Hi Dory, I do give Board of equalization taxes that I charge my customers, in our case in Bakersfield, city is 8.25 percent. Like clockwork they remind me every January the last 3 years. Corey Link to comment Share on other sites More sharing options...
connieb Posted February 2, 2011 Report Share Posted February 2, 2011 WOW what a great topic. Dory - I've been wondering the same thing. I see my tax person in 2 weeks and will definitely be asking her. Since I just started it shouldn't be to big a deal for this past year but I want to get it right. I didn't charge my customers tax in 2010. Although I have been charged tax by other longarmers in our area who did quits for me. Link to comment Share on other sites More sharing options...
Laurie Posted February 2, 2011 Report Share Posted February 2, 2011 Dory - I charge sales tax on everything ~ my quilting charge, batting, thread, extra services (binding or seaming backs). I'm in the same area as LauraJ. I haven't asked what others do. I have been in business for a long time and have always charged tax. Go figure. At least I know I am a legit business! Link to comment Share on other sites More sharing options...
Myrna Ficken Posted February 2, 2011 Report Share Posted February 2, 2011 In CA and many other states quilters do have to charge sales tax. It is a fine line, but it is manufacturing and taxes do need to be (collected) and paid to the state. I didn't like (collecting) it but when I lived CA I was running a business and that was part of it. It's not that we are making extra money, we are turning it it to the state as required. My customers didn't like it either but understood and payed the tax. As always you can and should check with the state if in doubt. I'd rather be safe that sorry. Link to comment Share on other sites More sharing options...
DoryJM Posted February 2, 2011 Author Report Share Posted February 2, 2011 Wow, what a huge debate I started:P:D Currently, I charge tax on the quilting/thread/batting but I do not charge tax on my set up fee. That fee covers everything from pressing/seaming/turning, etc., a quilt and is the same for all quilts. I'm too lazy to try to keep track of separate items, so I feel a flat fee is easier. I've done it since day 1 and I've collected taxes since day 1, so for now, I'll continue to do that. I do business under my husband's business license (he does embroidery and screen printing) and added quilting for me, although my official business name is different from his. To further confuse this matter, I think I'll ask our accountant what he thinks about the whole mess. He's very "by the book," so I trust his opinion. Thanks everyone for your comments!! Just proves to me that quilting is far better than being a CPA:P:P:P:P Link to comment Share on other sites More sharing options...
Merryjo2003 Posted February 2, 2011 Report Share Posted February 2, 2011 Dory, I fought long and hard with the State Board of Equalization. I argued that we are providing a service or labor. They said it falls under the category of "Fabrication", therefore we have to charge sales tax on the labor. Those who don't charge it up front (there are some that don't) have it built into their prices (or should). We are supposed to file and then pay the sales tax to the state. I don't agree with them, but it keeps you out of trouble. Here's another kicker with the "rules." If I quilt for someone in another state (which I do, several other states via the mail), I don't have to charge them CA sales tax. They are supposed to "report" it to their state and pay "use" tax on my bill for services to their state. Wierd. I'm sure they don't. Who would even think about that? If they came to CA and picked it up, they would have to pay sales tax here, then take it home. Who comes up with that stuff anyway!!!! Link to comment Share on other sites More sharing options...
KarenH Posted February 2, 2011 Report Share Posted February 2, 2011 I live in New York, and work for a CPA firm, here in New York, the state says, everything is taxable unless we tell you it is not!! Link to comment Share on other sites More sharing options...
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