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I'm in the state of Florida and required to sales tax on…

I'm in the state...

I'm in the state of Florida and required to sales tax on Fabrication - how do I determine what percentage of a manager's salary is considered taxable under the fabrication rule

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

The manager also designs the screen cage enclosures, meets with customers, deals with HR issues, schedules jobs, orders materials etc etc

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Answered in 7 minutes by:
12/8/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,140
Experience: Taxes, Immigration, Labor Relations
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Charges for fabrication are taxable. Fabrication occurs when material is cut, threaded, shaped, bent, welded, sheared, punched, drilled, machined, or is changed from its original state, because of work performed on it.

Contractors who perform taxable fabrication must pay use tax on the fabricated cost of the items fabricated.
When calculating use tax on the cost of items of tangible personal property manufactured, produced, compounded, processed, or fabricated, the contractor should:
• Include the cost of the direct materials used to fabricate an item if the contractor did not pay tax to the materials vendor on the purchase of the materials.
• Exclude the cost of the direct materials if the contractor paid tax when it purchased the materials.

If a contractor fabricates a product at the job site, fabrication labor is exempt from tax.

Only the cost of the materials is subject to tax.

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Customer reply replied 7 months ago
This did not answer my question - I know all of this already

You asked - how do I determine what percentage of a manager's salary is considered taxable under the fabrication rule

The answer is ZERO - and why - that is explained above.

Let me know if this addressed your concern.

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Customer reply replied 7 months ago
I am undergoing a sales tax audit and being charged sales tax for gross wages, social security and medicare tax for the manager of our company - state is saying because some of his time is spent drawing the items we fabricate. Also paying state sales tax on employee that fabricate these items in the shop (tax on their gross wage, ss and medicare taxes)
Customer reply replied 7 months ago
state sales tax charged on their workers comp portion

Sale taxes are NOT charged on wages...

Sales tax is added to the price of taxable goods or services and collected from the purchaser at the time of sale.

The sale price is what is the basis for calculating sales tax.

Sales tax and discretionary sales surtax are calculated on each taxable transaction.

When items are fabricated in your shop - and not at the job site - the FULL sale price is subject to sales tax.

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Customer reply replied 7 months ago
Fabrication Tax - is what they are calling it and they are using the wages, FUTA, SUTA and W/C rates of our shop employees to calculate it and charging us based on the state's sales tax rate
Customer reply replied 7 months ago
That's why I am trying to determine what percentage of a manager's salary should be considered when he does other things - we were originally using a 25% figure but the state tax auditor is saying we should be using 100% - this would cost us a fortune in additional tax and just doesn't seem correct since that is not his only duty - if that were the case then they would have to charge us tax for every employee including office employees
Customer reply replied 7 months ago
Sorry for all the questions - this has been very confusing

There is no separate "Fabrication Tax" ...
We may talk about sales tax on items which are fabricated and sold to customers.

We may talk about sales tax on items which are fabricated - and not sold - but used internally.

We may talk about employment taxes on wages - that is a different issue.

And final - we may talk about Fabrication Cost - total amount your business spent on fabricating.

We need to clarify the subject what we will discuss.

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Customer reply replied 7 months ago
We fabricate screen enclosures for pools and lanais - we don't charge sales tax on those enclosures
Customer reply replied 7 months ago
We are being charged sales tax on our labor portion of that fabrication that is done in our shop - that is calculated from the employees wages
Customer reply replied 7 months ago
The state takes the gross wages, FUTA rate, SUTA rate, W/C rate adds them together then multiplies 6% rate and that is the tax we pay in addition to any material that we may have not paid tax on when purchased - less any tax collected from our retail sales - I was trying to determine if we should be paying any portion of the manager's salary as part of that calculation

If you sell screen enclosures - you will need to charge sales tax of the sale price unless the buyer provides an exemption certificate..

If you do not do so - that creates an issue.

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Customer reply replied 7 months ago
we build enclosures - we have never in 40 years charged sales tax on a pool enclosure
Customer reply replied 7 months ago
our CPA has never advised us to do so

Do you sell the product you build?

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Customer reply replied 7 months ago
No - we physically build it on-site
Customer reply replied 7 months ago
Its the big cage that covers a pool to keep the bugs out - we are in Florida

And what do you do with these enclosures?
How they are transferred to end users?

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Customer reply replied 7 months ago
We build them in stages in our shop - transport them on trailers and then the installers put them together on site using blue prints
Customer reply replied 7 months ago
We work in a three or four county radius

Who pays for these enclosures?
You said that you are NOT selling them? Is that correct ?

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Customer reply replied 7 months ago
We have a separate retail store in which homeowners can buy screen or aluminum parts - that is different - YES we sell them to contractors and individual homeowners - we are contracted to build them just like building a pool or a home - we have to pull permits , surveys etc

So indeed - you are SELLING enclosures which you produce.

That means - you should charge sales tax on THESE sales.
When you sell to contractors - and these contractors provide you with the exemption certificates - THESE sales are not subject to sales tax,

but if he exemption certificate - you will need to include sales tax into invoice.
Because you do not do so - that is why the auditor want to charge you sales tax - because you failed to collect sales tax from end users.

You will need to discuss that issue with your CPA and adjust your sale tax accounting practice.

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Customer reply replied 7 months ago
OK - so going back to my original question - how do I figure what percentage I should use on a manager's salary or are you saying that their salary should be exempt and what about CAD design people?
Customer reply replied 7 months ago
are you saying by us adding sales tax to the final product (cage sells for $25,000 sales tax 6% is 1500 = 26500) and reporting that $1500 in collected sales tax - this would eliminate the whole need for calculating the tax against our wages for our fabrication?

There is NO preset percentage.
If you are looking for calculating the cost on your product - you will need to prorate the time which managers spent for EACH product you fabricate - then you will allocate managerial and other overhead cost to each product.

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Customer reply replied 7 months ago
Ok thank you

.

Regarding charging sales tax - the first step - for each sale transaction - you need to determine if that is a taxable sale or not.

If that is a taxable sale - yes - you need to charge sales tax based on the sale price.

You need account separately for taxable and not taxable sales.

If taxable and not taxable items are grouped in one invoice - they must be separately stated.

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Customer reply replied 7 months ago
How do I determine what is taxable and non-taxable - you mean by my contractors being exempt from sales tax?
Customer reply replied 7 months ago
Or you mean by the product being fabricated in house - what about if it's strictly fabricated in the field - is it subject to sales tax then?

Sales and Use Tax on Building Contractors
http://floridarevenue.com/Forms_library/current/gt800007.pdf

This will provide you with most consolidated information.

General information regarding taxable and non taxable sales

http://floridarevenue.com/Forms_library/current/gt800013.pdf

here you will also find sales that are exempted from sales tax and how that is documented.

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Customer reply replied 7 months ago
Thank you

what about if it's strictly fabricated in the field - is it subject to sales tax then?

That is what we discussed at the very beginning.

If a contractor fabricates a product at the job site, fabrication labor is exempt from tax. Only the cost of the materials is subject to tax.

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Customer reply replied 7 months ago
anything we build 100% on site we would not charge the end user sales tax but a cage that is built in-house then installed on site would be subject to sales tax to the end user

Correct - anything that were built 100% on site - do not charge sales tax that is tax exempt sale - BUT you will have to PAY sales tax on all materials used for that - you pay either to your suppliers OR directly to your state taxing authorities.

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Customer reply replied 7 months ago
we pay 99% of our items already with tax charged - every now and then something we buy online doesn't have tax and we keep track of that and submit that on our tax return and pay the tax associated
Customer reply replied 7 months ago
ok thank you for taking the time to help clarify this very confusing issue

If the auditor added additional sales tax liability - that means - some sales which are supposed to be taxable sales - you did not charge sales tax.

That is the issue.

Lev
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Satisfied Customers: 33,140
Experience: Taxes, Immigration, Labor Relations
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Customer reply replied 7 months ago
ok thank you
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