Every state is different when comes to sales tax for systems and projects – there are hundreds of tax codes. In some states, labor is exempt; in other states, your tax applies to labor as well as equipment.
NSCA has seen integrators get into trouble when they assemble products prior to going to the jobsite. It makes sense to build in a controlled environment where you’ve got the correct tools and test equipment, along with the people and materials you need. But when you do this, make sure you know that sending these products out as a complete assembly makes labor taxable.
One way around this is to indicate partial assembly vs. complete assembly. Because equipment isn’t really “working” until it’s connected to inputs and outputs on the jobsite, labeling it as “partial assembly” allows for a labor-exempt state tax ruling.
When you’re bidding outside your normal geographic work area, you could be opening your organization up to a potential sales tax audit – and a pretty big fine if you’re not in compliance, as we’ve seen with several NSCA members.
Why It’s Important
In Iowa, for example (NSCA headquarters), labor is exempt. But for an Iowa integrator selling something in Minnesota, labor is not exempt. Someone in your office should understand the right method for handling these situations before you bid the project.
NSCA has seen member companies have to pay back taxes of several hundreds of thousands of dollars because they didn’t believe they had to collect or submit sales tax. In some cases, NSCA has been able to help members successfully fight this, explaining that it’s customary to assemble as much as of the equipment as possible in an office before it’s shipped to get a head start on labor that would typically be done on the jobsite.
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At NSCA, we often receive questions from members about regulatory and legislative issues. We often hear the same question or comment from several companies, so we know these challenges are faced by almost every integrator across the country.
Not understanding these business basics can cost you big money if you’re not in compliance. Build your company on a firm foundation by following these contracting basics and understanding these four business issues.
This is the last blog in a four-part blog series that outlines the common business challenges our members face – and how these challenges can be dealt with.
Are there other issues you’d like to see us cover here? Let us know! Make sure to check out previous posts: part one (licensing requirements), part two (prevailing wage jobs), and part three (product substitutions). -Chuck Wilson, NSCA Executive Director