Join Date: Apr 2017
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Sales Tax Question
Please forgive me if this is already answered in the forums; I looked around but didn't see the answer.
I've been subcontracting for my sister for the last year doing property preservation. She gets her work from the national companies for the most part. In my state, I'm required to pay sales tax on services, so property preservation work constitutes as taxable work to be paid to the state by the buyer of services. The buyer of services would be the banks holding the mortgages in most instances, but according to my sister, the contracts signed with these national companies require the vendor to pay the sales tax on their behalf. So, the guy on the bottom gets to pay 6.5% on behalf of the big companies. I just want to verify that this sounds right to other people, because it's a pretty crappy deal and I wanted to look into it. When I mow lawns or perform repair work for other companies, I charge them sales tax to pay to the state, but when working for these national prservation companies, we pay it out of pocket and then get a 1099 including sales tax money we paid to the state as taxable income.
Just wondering if other people have dealt with this and how you handle it. Do you just pay the state sales tax out of pocket and then deduct it as a business expense for income taxes? I realize not every state requires sales tax on services, but if you're in an applicable service area, please let me know. Personally, I'm finishing my schooling to become an electrician and distance myself from this industry, but I don't want my sister getting screwed if this is the wrong way of dong things and we just didn't know. The state sales tax rep says it's wrong because the buyer should be paying the tax and not us, but I'm guessing that their contract makes it perfectly legit. Or, if we brought litigation against them, they would just modify their discount to ensure the little guy still got stuck with the tax burden.
I would appreciate any insight as some of the work with these companies is already not all that lucrative at times, so the additional 6.5% we pay is a bit of a kick when we're already down.