When does a small business have to charge sales tax? It's not always a straighforward question.

QUESTION.
I just opened an LLC a few months ago as a painter. I just completed my first commercial project, and I'm not sure if I have to charge tax. Any help would be appreciated.

ANSWER.
There are all kinds of taxes businesses owe. The two main ones are income taxes and sales taxes. But sales tax is only collected (and owed) when you sell a product, i.e., a prepared meal at Burger King, a picture from a gallery, or a book from Amazon.com. A service business on the other hand does not collect sales tax because services are taxed under the income tax laws. When a lawyer renders legal services he does not collect sales tax. When a barber performs a haircut for a customer he does not charge sales tax. And when a commercial painter paints a building (he is performing a service) and he does not charge sales tax.

Now if you sell your customers the paint and materials you use to perform your services, you will need to collect sales tax on those items. Paint and materials are products that can be sold. But if you use the paint and materials during the performance of your painting services and do not sell them to the customer, then you collect no sales tax on their value. You will just expense the paint and materials as part of your cost of doing business.

I hope my comments are helpful to you. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com