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ShawnA
ShawnA, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
Category: Tax
Satisfied Customers: 2884
Experience:  CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
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My small company is in California. We use an electronic manufacturing

Customer Question

My small company is in California. We use an electronic manufacturing service company (contract manufacturer) to build our products. We provide them with things like resistors and capacitors (electronic components), and they load them on pick and place machines and they get soldered on a printed circuit board. There are a couple of additional components that they need to solder on to the board by hand. They test the completed board, and screw it into an enclosure to create the finished product.
JA: Thanks. Can you give me any more details about your issue?
Customer: Not finished ... sorry ... They charge us sales tax for the creation of a stencil which is used in the solder process (so solder only goes on to the correct places). They do not charge us sales tax for anything else (like labor or test). I assume they are doing this correctly? But, I just have to ask to make sure that they are correct that the stencil is the only thing that should get sales tax. Thank you so much for your help ...
JA: OK got it. Last thing — Tax Professionals generally expect a deposit of about $32 to help with your type of question (you only pay if satisfied). Now I'm going to take you to a page to place a secure deposit with JustAnswer. Don't worry, this chat is saved. After that, we will finish helping you.
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
I don't know if it makes a difference. But, we purchase the electronic components (resistors, etc) and have them shipped to their facility. I think they call that inventory model "consignment"
Customer: replied 1 year ago.
Also, the contract manufacturer is in California as well.
Customer: replied 1 year ago.
The Contract Manufacturer also had us sign a California Certificate of Resale.
Customer: replied 1 year ago.
We sell the finished product on our website, and charge California sales tax on the sale price for shipments within CA.
Expert:  Angie replied 1 year ago.
According to California publication 61 which lists exclusions for sales tax, most tangible items are taxable (the stencil would fall into this category) However there is an exclusion for the "labor" of applying the solder. This is the verbage: "INSTALLATION LABOR—Labor or service to install or apply property sold is not subject to tax, but the charges for other services in connection with a sale are subject to tax.REVENUE: N/A SECTIONS: 6011 and 6012" It appears that they are charging sales tax correctly.
Customer: replied 1 year ago.
Angie. Thanks for your response! But, I thought I was asking the question directly to another JA expert named PDTax. I wanted to ask PDTax because she/he had already been helping another user with California contract manufacturing tax. Will PDTax be jumping in here to provide more input?
Expert:  Angie replied 1 year ago.
I will refer this to customer service. When I answered the question, it did not indicate it was for a particular expert. Thanks!
Expert:  ShawnA replied 1 year ago.
I am a CPA and can respond via telephone. Please let me know.

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