Should I Charge Sales Tax?

September 30, 2010 8:44 AM

I am opening an electronics repair shop in PA, I will be repairing cell phones, video games, and computers. Do I collect sales tax?

I won't be selling the parts for people to repair things themselves, just my repair services to fix all their broken items. How do I go about figuring the tax situation? I understand as my sole proprietorship, I will pay income tax quarterly, however I need to verify if I actually am required to charge the customer sales tax. I looked on PA's site and my business is under the 'Professional Service' category and it says it doesn't apply. Thanks in advance!

posted by psiwave to Law & Government (6 answers total)

Tax law is funny on stuff like that. I'd give them a call directly and just explain to them what you're doing and the sales tax implications. You may have to charge tax to them for the materials since you are selling them the part (unless you're doing some sort of flat fee that if they pay $x you'll fix whatever is broken with their item), but not on your time.
posted by deezil at 9:28 AM on September 30, 2010

Response by poster: @deezil Thanks very much for the info, yeah I usually do a flat rate so I think that's the route I'll go. I shall give them a call in the meantime.
posted by psiwave at 10:12 AM on September 30, 2010

You have to split the invoices. Labor can be charged straight rate, but any materials that change ownership (e.g. new antenna, screen protector, new chip) by sale must be charged a sales tax. So, for example, your invoice to a customer looking to get a new antenna on their phone would look like:

Antenna (Parts) $4.55
PA Sales Tax (Parts) $0.41
Repair of Phone (Labor) $32.00
__________________________
Total $36.96


This is totally normal with repair services, including furniture, electronics, and clothing.
posted by juniperesque at 10:23 AM on September 30, 2010

Response by poster: @juniperesque That's what I thought and agree with, I just called the State and they said otherwise. I think the guy wasn't totally clued in, going to call an accountant and ask. Makes more sense, when I get my car worked on, the parts are taxed, labor is not. Same applies to computer repairs.
posted by psiwave at 10:39 AM on September 30, 2010

Make sure you check with your county as well. I know Allegheny and Philadelphia counties charge sales tax in addition to the state, but I'm not sure what the laws behind that are.
posted by BiffSlamkovich at 10:50 AM on September 30, 2010

Interesting. Here in Washington State, we do have to charge sales tax on labor. But yes, when in doubt, consult your state's Dept. of Revenue and ask them just as you asked here. "This is what I'll be doing, and how I'll be doing it... What do I charge sales tax on, and what do I not charge sales tax on?"

Whether your accounting and point-of-sale system is computer based or all manual, you will probably want to maintain separate "Departments" (and GL accounts) for your taxable sales and for labor, if your labor is indeed not subject to sales tax. This will greatly simplify things when it comes time to do your quarterlies; you'll have an accumulated total for your taxable sales, and for your tax-exempt sales.
posted by xedrik at 11:59 AM on September 30, 2010