Are pass-through expenses subject to sales tax?
October 29, 2015 10:08 AM   Subscribe

I received an invoice from a software supplier, for travel expenses for their guys to install an upgrade on a program here in our shop. This invoice includes sales tax (Texas) for those expenses. Is this correct?

The software is taxable, which I understand. However, the invoice for travel expenses such as taxi, plane tickets, lodging and per-diem meals also includes a sale tax charge. All of these expenses have already had appropriate sales tax charges applied to them, so this seems to be a double charge.

You are not my Sales and Use Tax accountant.
posted by Midnight Skulker to Law & Government (6 answers total)
 
Texas imposes sales tax on the service of installing/maintaining software, so this doesn't seem incorrect to me.
posted by melissasaurus at 10:45 AM on October 29, 2015


This is only applicable to the expenses relating to the travel - plane/per diem/hotel etc etc:

I call nonsense that he added sales tax to the traveling expense report. So if he paid $10.00 for dinner, which the receipt included the sales tax for meals for the state, there would be no need to charge you $10.60 to cover the sales tax. You're getting double charged for the tax essentially.

If the initial costs did NOT include the sales tax (which would be very odd) then i could see adding it to the expense report. My bet is that the guy messed up during the submission and no one caught it (on the software we use for expense reporting you have to select "no tax profile" if the taxes are already part of the expense you're reporting).
posted by Suffocating Kitty at 10:49 AM on October 29, 2015


I get why you're asking us before you call them, but honestly I would just ask your vendor to check into it, and to justify the cost to you.
posted by vignettist at 10:50 AM on October 29, 2015


I call nonsense that he added sales tax to the traveling expense report. So if he paid $10.00 for dinner, which the receipt included the sales tax for meals for the state, there would be no need to charge you $10.60 to cover the sales tax. You're getting double charged for the tax essentially.

It's not passing through the sales tax on the underlying charge, it's imposing a new sales tax on the charge for services rendered to the OP. The service provider (SP) had to pay sales tax on items/services used by the SP in making its sale (as opposed to items/services purchased for resale, for which the SP may be able to claim an exemption), and, in addition, the total charge for the SP's services (which may reflect the costs to SP of providing that service, like travel) is also subject to tax.

This (cascading) is the main difference between a sales tax and a value added tax.
posted by melissasaurus at 11:30 AM on October 29, 2015


This varies by state and the rules are often very specific. I have no idea about Texas, but where I work, if you deliver anything physical in the course of the job, you charge sales tax on the entire cost of the job. That includes all related expenses even if providing otherwise sales-tax exempt services. So yes, I would charge sales tax on top of travel expenses because that's what the state requires of me.

I call nonsense that he added sales tax to the traveling expense report. So if he paid $10.00 for dinner, which the receipt included the sales tax for meals for the state, there would be no need to charge you $10.60 to cover the sales tax.

He's not being reimbursed by his employer, he's a vendor. Big difference. In your example, both the restaurant and the vendor have licenses with the franchise board. As far as the state is concerned, these are two different sales. One for dinner, which the restaurant collected sales tax on, and another for the job this vendor provided, which the rules may or may not require them to pay sales tax on depending on how their industry is regulated and what the tax law says in the state of Texas.

I bet if you ask the vendor he will explain exactly what the laws are. You won't have been the first person to ask I'm sure.
posted by bradbane at 11:33 AM on October 29, 2015


Response by poster: For what it is worth, I asked the vendor about the sales tax. Their response was to issue a credit for the amount of the sales tax. I never got an "Oops, sorry" from them, so I don't know if they just declined to go through the hassle of justifying the charge.
posted by Midnight Skulker at 10:53 AM on November 30, 2015


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