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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22743
Experience:  Taxes, Immigration, Labor Relations
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Question re California District Sales Taxes. Our company sells

Resolved Question:

Question re California District Sales Taxes.
Our company sells and installs office furniture: We very rarely have walk-in traffic to our warehouse/sales office, and then it is by appointment only as our sales staff is almost always in the field. Our customer contact is either by phone or face-to-face at their business sites. We sell and install primarily to businesses in central and northern California, from the Bay Area to the Nevada border and from Fresno to Marysville. We charge for product (new and/or used), for the labor costs to locate and retrieve product from our own warehouse or from warehouses owned by other businesses, for the labor to refurbish worn product, for delivery to the customer's business location and for installing product including assembling and installing cubicles on site and wiring for power and networking. The BOE's many documents on the relevant topics are confusing and sometimes contradictory. How can we determine whether we should charge sales tax based on the location of our own sales office/warehouse v. the location of the business to whom we deliver the product or perform the service, and on which of the referenced activities do we charge sales tax?
Submitted: 10 months ago.
Category: Tax
Expert:  Lev replied 10 months ago.

Lev :

Hi and welcome to our site!
Sales tax charges are based on the sale location - means - the location at which your company transfers possession or ownership of the merchandise.
The location of your business or warehouses are irrelevant in this situation.
To assist retailers and consumers in identifying addresses located within special taxing jurisdictions- here is website provides a link to their address databases at: www.boe.ca.gov/sutax/cityaddresses.htm.
If you deliver the product into the district with your own vehicle - you are considered “engaged in business” in a district.

Customer:

Thank you Lev for that clarity about transfer of possession/ownership. The other part of the question was - are all of the activities for which we assess a charge subject to sales tax? product (new and/or used), for the labor costs to locate and retrieve product from our own warehouse or from warehouses owned by other businesses, for the labor to refurbish worn product, for delivery to the customer's business location and for installing product including assembling and installing cubicles on site and wiring for power and networking.

Lev :

Here is the BOE publication http://www.boe.ca.gov/pdf/pub44.pdf

Lev :

When the customer takes merchandise from your warehouse - and deliveries it using their own transportation - that means - they are taking possession at your warehouse location.
However - when warehouse is delivered to customer's location - that means - they are taking possession at that location.

Lev :

See page 6 in referenced publication - The following example illustrates when retailers should collect and report district use tax:
A retailer in Santa Clara County makes a taxable sale of property which is delivered to and used by the purchaser in unincorporated Alameda County. Even though it is subject to the general sales tax, the sale would be exempt from Santa Clara County district taxes because the property was delivered pursuant to the contract of sale outside the county for use outside the county. However, use of the property in Alameda County makes the sale subject to the district use tax in Alameda County. If the retailer is engaged in business in Alameda County and ships or delivers the property within Alameda County, he or she is responsible for collecting and reporting all applicable county-wide district use taxes on his or her sales. If the retailer is not engaged in business in the county, the purchaser is generally responsible for reporting and paying district use tax on his or her purchases.

Customer:

Hi Lev, Thank you for the clarity about the Location and Possession/Ownership criteria. That is very clear and helpful. Can you provide similar enlightenment regarding the second part of the question as to which activities are sales-taxable? The BOE pamphlets and bulletins I have read are confusing an sometimes contradictory. (product (new and/or used), labor costs to locate and retrieve product from our own warehouse or from warehouses owned by other businesses, labor to refurbish worn product, delivery to the customer's business location, installing product including assembling and installing cubicles on site, and wiring for power and networking.)

Lev :

Tax applies to charges for producing, fabricating, or processing tangible personal property for your customers. Thus charges to refurbish worn product are subject of the tax.


Fabrication is considered to be work done in creating, producing, processing, or assembling a product. Modifying an item or system as part of a sale is also considered fabrication. Charges for fabrication labor are generally taxable, whether you itemize your labor charges or include them in the price of the product. This is true whether you supply the materials for the job or your customer supplies the materials.

Lev :

For installing product including assembling - see here - http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1546.html


(a) INSTALLATION GENERALLY. Charges for labor or services used in installing or applying the property sold are excluded from the measure of the tax. Such labor and services do not include the fabrication of property in place.

Lev :

For delivery charges - see Publication 100, Shipping and Delivery Charges - http://www.boe.ca.gov/formspubs/pub100/
Delivery–related charges may be nontaxable, partially taxable, or fully taxable based on conditions.

Lev :

Delivery–related charge is taxable when You deliver merchandise with your own vehicles.

Customer:

OK, I think we're getting closer - I think I understand about refurbishing. So, would it be correct to say that charges to get a product ready for delivery are taxable including labor to locate the product in the warehouse and clean the product; delivery charges to deliver the product in our own vehicle is taxable, but installing the product at the customer's premises is not taxable? And after reading 1546 repair section it seems fair to say that when we are hired to reconfigure an office cubicle (ie to relocate the access point or rotate the cubicle to face a different direction) that is non-taxable labor, but if we replace a high panel with a lower panel, the price of that replacement panel would be taxable and should be separately listed to limit the tax applicability to just the replacement part?

Lev :

So far - assuming all charges are stated separately
-- charges to refurbish worn product - taxable
-- delivery charges - taxable
-- installation charges - not taxable.

Lev :

I would agree with your assessment - but because that is related to very specific business operations - you might know better the difference between repair and installation. Sometimes - there is no clear cut - and we must use a common sense for determination.
What is important - all these charges must be clear identified and separately stated on the invoice.

Lev :

In additional - BOE provides educational seminars for sale tax practitioners that might be helpful.
There is no charge to participate - and you may bring your specific questions.
Please take a look at schedule - http://www.boe.ca.gov/cgi-bin/tax_class.cgi

Customer:

I think the one area where there may still be some confusion (or maybe it's resistance) is about the labor to locate a product in the warehouse - can you identify that specifically as taxable or non-taxable?

Lev :

"the labor to locate a product" is not specifically mentioned in any regulations.
I would classify it as a part of delivery charges.

Customer:

That's interesting. It can sometimes take 40 man-hours to locate and gather all the parts for 100 cubicles, so you can see why we would assess that cost specifically. Does that information modify your opinion of taxability of those charges? I think were home after your answer to that....

Lev :

The classification of each charge is very specific for your business operations.
So far - I see three main steps - fabrication, delivery and installation.
Because - you would not install the merchandise which is not completed - I assume that "locate a product" sub-step would be either a part of fabrication or delivery.
I do not think that BOE would accept arguments that "locate a product" is part of installation - that would mean delivered merchandise is not ready for installation - and all installation might be classified as fabrication...
But again - that might be very specific for your business and there might not be a clear cut.

Customer:

OK. I think that greatly improves my understanding of the application of these regulations to this business. Thank you for your very complete response.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22743
Experience: Taxes, Immigration, Labor Relations
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