Know what sales tax your state requires on repairs.
Do you charge sales tax on all repairs, some repairs, or none at all?
Most states require your store to pay sales tax on all items that come into your store — items that are sold, given away or used or consumed in the store.
I didn’t say you personally had to pay the sales tax, but somebody will. You’ll be a partner to the state in either paying it yourself or collecting it and sending it to your state.
For instance, when you buy an amethyst ring, you don’t pay sales tax on it yet. You sell it, charge the customer tax, and send in the tax next month. tax paid.
But if you give an amethyst ring to a charity for an event, the state didn’t get its sales tax because it wasn’t sold, but you must send in sales tax on your cost.
Simple enough, right? When it comes to repairs, though, it gets a little more complicated.
Let’s say you sell a lobster claw for $30. You charge another $20 to solder/install it. The sale is $50. You can charge sales tax on the whole $50 sales (we did) or charge tax on just the sale of product, the claw for $30. There is no sales tax on labor in most states, but I wouldn’t divide up a lobster claw sale; it’s too much for the staff to figure.
Some jewelers won’t charge sales tax on a replacement earring post. It’s such little money for the post, right? But it’s a product, and, again, we charged sales tax on the complete repair sale if it had product included.
But what if you don’t charge sales tax on the sale at all, like furnishing and soldering an earring post? Then you must pay sales tax to the state on your cost of the earring post. It’s called “use tax.”
I suggest charging sales tax on repairs if it includes material. I wouldn’t count solder as material so I would not charge sales tax on sizing smaller, chain solders or retipping.
I would, however, collect sales tax on 100 percent of the charge to furnish and install a clasp or earring backs, new head and set, or to size a ring larger.
Tape these points to the bookkeeper’s forehead and you’ll save yourself a lot of grief:
- Charge sales tax on a repair, if it has material.
- Pay sales tax on the cost of any item given to charity.
- Pay sales tax on shop supplies that are used to make and repair jewelry if your vendor doesn’t charge you sales tax on the invoice.
- Pay sales tax on items bought out of state and sales tax was not charged. Add it to your monthly sales tax report as use tax if it’s not for resale.
- Keep good records of out-of-state sales.
- Pay your sales tax on time. Penalties and interests are high.
DAVID GELLER is a consultant to jewelers on store management. Email him at dgellerbellsouth.net.
This article originally appeared in the September 2014 edition of INSTORE.