Repair Busiiness Question

[Pryde]

I have a quick question for you repair business owners here:

When you repair an amp for a customer, do you charge a state sales tax (if applicable) on any components you used to complete the repair (i.e. filter caps, resistors, potentiometers, etc?).

Also, with an established business, are you able to get such parts at wholesale or is it still retail (i.e. Mouser electronics, etc)?

Just curious on the accounting end of this stuff

Thanks for the responses.

[The Dude]

At least in my state/instance, and I would think most, tax is charged on the final invoice- be it parts, labor, whatever. I can't think of a practical reason why you wouldn't tax parts? It's goods sold- no different than going to the local parts store and buying a part. Do they charge you tax?

Whether or not you can get a dealer account for parts would be up to that particular dealer or distributor. Contact them and find out if they have such a program and if you are eligible.

[Enzo]

I am a business, I am required to collect sales tax. In Michigan, only goods are taxed - parts - services are not. So here there is no tax on labor. ANy money I take in as sales tax is not income, as I am only collecting it for the state. I am a small business, and i am only required to file sales taxes annually. Larger businesses file monthly.

COntact your state department of treasury to find out about getting a sales tax license. It used to cost one dollar here in Michigan to sign up, and I don;t recall sending in any further dollars, just straight tax collected. The state has the right to ask for a bond, but a far as I can tell, they never do, at least not here.

No one is going to take you seriously as a business if you do not have the tax license for your state.

Wholesale/retail is up to each vendor. Mouser is what you see is what you get. we all pay the same there, though I might buy 25 MJ15024 and you might buy two of them, so I get a lower unit price. But there are times even a small guy can get a bulk price there. Like diodes or resistors - small items. A diode might be 23 cents or 30 cents, but if I buy 100 of them, they are down to 2 or 3 cents. Either way they weigh nothing, so shipping is a wash. But something like a 220k resistor or a 1N4007 diode or 1N4148 diode is something we use all the time, so I go for price break on a larger handful.

There are different accounts. A sales account means they will do business with you, simple as that. A credit account means they will extend you credit - they send parts and an invoice, which they trust you to pay. But you don't necessarily have to establish credit, for example I have a few accounts where I just use my shop credit card. Uusually you can leave your credit card on file with them and it will be one of the payment options at checkout.

AES is a retail store, CEDist is their wholesale division. It's the same place, but you have to set up a wholesale account to deal with them at wholesale. Magic Parts is as far as I know wholesale only.

Parts accounts I have with the OEMs grant me discounts, but I am a service center for those companies. I get something like 45% off retail from Peavey, Fender charges me half the retail price for parts. But I have to become a service center and maintain that status. Otherwise you pay retail at Peavey and at Fender, they refer you to a dealer.

[The Dude]

Interesting that your state does not require sales tax on labor, Enzo. I haven't heard of such a thing. Not so here in SD. But then again, I don't get out much.

[Pryde]

In my state there is no service/labor tax as well.

So for instance if you buy any part x from mouser for $1.05 (your unit price depending on quantity) do you then charge the customer $1.05 for the part plus applicable state sales tax (i.e. +7%). I know this is simple as most often there will be more than one part used but just for discussion's sake.

Also, do you usually mark up the $1.05 part for an additional profit?

How do you report that from an accounting standpoint?

[The Dude]

IMO, if you want to stay in business, YES, you mark up the part. Remember, in acquiring that part, you had to research it, order it, pay to have it shipped, file sales tax info on that part, possibly add it to inventory (depending on the size of your shop and how you account for things), etc. You have a lot of time and additional money involved in just getting that part. You need to make some money on it.

Businesses account for costs in many different ways. Some are very particular and go so far as to match up part costs on a per job/invoice basis. My shop is not that large. I simply lump all of the part costs in to one expense- part of the cost of doing business.

[bsco]

Where I am I have to charge 13% tax on the total invoice.......parts and labour....I can deduct the taxes that I paid out and subtract it from the taxes collected on the repairs and submit the difference...and I do this monthly...dishing out 3,4 or 5 hundred dollars sales tax every month is one thing...Lumping it altogether at the end of the year is not something I am fond of.....and I therefore avoid it...but your area of the world is different....and the tax laws and regulations are different as well..... I work out of my house so I have other tax breaks...there are pros and cons to that type of set-up...you need to check with the local governing bodies to see what options are available to you....
Cheers,
Bernie
P.S. Forgot to mention....I don't have credit set up with vendors...They have my Visa card on file and when I order I pay....I find that this works for me....

[Pryde]

IMO, if you want to stay in business, YES, you mark up the part. Remember, in acquiring that part, you had to research it, order it, pay to have it shipped, file sales tax info on that part, possibly add it to inventory (depending on the size of your shop and how you account for things), etc. You have a lot of time and additional money involved in just getting that part. You need to make some money on it.

Businesses account for costs in many different ways. Some are very particular and go so far as to match up part costs on a per job/invoice basis. My shop is not that large. I simply lump all of the part costs in to one expense- part of the cost of doing business.

Yes indeed I agree with marking up certainly. So in my (and Enzo's) case it would be a separate untaxed labor charge and a taxed total parts charge on an invoice.

[The Dude]

Where I am we pay 6% sales tax on the total invoice- goods or service- no deductions, so it does not make sense to track my cost in parts per invoice. There would be no sales tax advantage in doing this. However, when income tax time comes, it's good to know what the parts cost for the year was.

Pryde: Enzo would know more about your situation than myself, since our states apparently have different sales tax laws. It does look like you have it right with your assumption.

[drewl]

Aside from the sales tax when a customer pays for their repair, any parts you buy online from other states you now have to pay tax on.
So that should be included into the cost of the repair.

[TomCarlos]

Pryde:

If you are running a business, meaning you resell parts, charge for labor, maybe even buy and flip amps, you must be setup to handle the accounting matters. For those who are not familiar with QuickBooks, you should be. I know, we are musicians and technicians, not accountants. But... running a business means you should be familiar your accounting and able to manage money.

Unless you live way out there, you should be able to find a QuickBooks Advisor in your area. This can be a CPA, Bookkeeper, etc. Most colleges train business students to use QB. However, there are special needs in setting up a small business. Once you install the program, you will setup your business to handle things like parts, cost and selling prices, tax rates, etc. This is done in the Chart of Accounts and Items lists in QB. The goal is to finish the month and be able to easily calculate what you owe in Sales Taxes. Tax is NOT income, it is a pass-through, from customer to the state. So you need to understand this and be able to produce reports (from QB) showing what YOU owe to the state. Remember, you are the custodian for "Sales Tax" collected from your business on the parts you sell (and perhaps on the service you provide).

Most states have reseller certificates. Once you have a certificate, you should be able to buy parts from a vendor without paying the sales tax. When you sell the part, that is when tax is charged. Your customers pay it. You'd have to check and see how your state (and that of your favorite vendor) handles this.

Chances are, you are only doing business in YOUR state. That makes it easy... One tax rate, one payment each month.

I am in the Consulting Business. I am a Corporation of 1 and the only employee. I've been using QB for many years. Since I became a corp this year, I had to start paying myself through a Payroll Service. QB does that too. I needed help in setting that up but now, it is second nature to do a payroll run (for myself) each month.

Last bit of advice... find yourself a good CPA, preferably one that knows QB and can work with your data.

Good luck... Tom

[Enzo]

Not quite, I am not taxed because my tax ID is on file with the vendor. I never pay tax on Mouser or CEDist invoices.

So for instance if you buy any part x from mouser for $1.05 (your unit price depending on quantity) do you then charge the customer $1.05 for the part plus applicable state sales tax (i.e. +7%). I know this is simple as most often there will be more than one part used but just for discussion's sake.

Also, do you usually mark up the $1.05 part for an additional profit?

Stop and think about that. "Additional profit?" Unless I mark up the part, there is NO profit. I ALWAYS mark up the price I pay on a part. I am spending my money, I expect it to work for me. If I buy a part for $1.05, then I will sell it for $2.10. I can charge what I want to of course.


So if I have a simple repair, i replaced a 1N4007 in an amplifier. I charge $60 labor for an hour (my minimum labor charge), I charge $1 for the diode, and 6 cents sales tax (6%), so $61.06 total.


I am not a parts store, I do not compete with the parts stores. I have parts on hand for repairs. I have THOUSANDS of dollars tied up in my parts drawers, not earning interest. You are paying me to have those parts so the repairs can be done in timely fashion. When I sell a quad of powr tubes for $80, someone might complain they can get them cheaper online. Fine, go ahead, we can all wait for them to arrive. Mine are here, we will make sure they work in your amp and we will adjust the bias. Your less expensive ones online will take time to get here, and you will; pay chipping on top of the cost. My shipping costs are averaged into the price I set. A typical part might get an "A markup", which is to double the cost. Costs a dollar, sell for two, etc. SOme pretty expensive parts get pretty steep, so I might be a nice guy and mark up a Marshall transformer only 50%. I still costs way too much, but i try to help. But then there are little parts. If I spend 2 cents on a 1N4148, I don;t sell it for 4 cents. I sell if for a dollar. So I pretty much make a dollar on a diode. I had to order it, pay shipping on it, put up a drawer bin to store it in, that dollar covers it. Unless they are fancy jacks that cost more anyway, I sell my jacks for $4. A Cliff type jack might well cost me 39 cents or even a buck and a half, but we sell her for $4. The least I sell an IC for is $4. All those dual op amp ICs - $4. They cost somewhere in the 29 cent to one dollar range. I have no qualms about charging for those small parts like that.


How do I report it? Income is income. I do account my parts sales separate from my labor, but in terms of income they are added together. There will be a line somewhere for "cost of goods sold" or some such. So if I sell $4000 of parts, but they cost me $1800, then my net on parts was $2200.


My sales tax return asks me what I sold in parts, then I owe them %6 of that amount.

Sales tax is a separate operation from the IRS and state income taxes.

[Pryde]

Thanks everyone for the replies and insight

@TomCarlos
Accounting is not my friend so this is why I started the thread. I am actually sighed up for a business course to get the accounting done the right way. I also am considering consulting with a good CPA as you suggest to help me organize.

@Enzo
Thanks for sharing your approach to handling parts/labor concerns. It is very helpful and I will follow suite and heed your advice (as usual . The part I wasn't real sure about was how buying parts out of state (i.e. Mouser,etc.), paying tax on them to my state, then charging tax the customer to recover the paid tax worked exactly in terms of documenting/reporting but you made sense of that.

[TomCarlos]

Pryde ...

Understood.... Compared to the thrill of sticking our hands in the middle of circuit boards where we dodge hundreds of volts, accounting isn't the most thrilling part of what you do. But... it is a necessary evil.

Ok, I will admit, I studied accounting years ago and worked in that area for a short time. But the nice thing about your business, the accounting part is pretty much a repeatable process. So once you learn how to record a transaction (selling a part, service, tax, etc), it's the same thing over and over again. There are tons of YouTube videos to watch too. QuickBooks is cheap, simple, etc. Once you get the hang of it, it's a snap.

If you have any other questions, please feel free to ping me via an email on this system. I will be glad to help and "pay it forward."

Tom

[Enzo]

If you ever used Turbotax, QUickBooks is no harder to use. Which is to say it is easy to use. I used QUickbooks for a while, but to really use it you need to enter all the data all the time, and I got tired of that. I still use Turbotax for taxes, but for running the shop, I just keep records.

I am in fact doing my taxes right now. I have all my work orders from the year, all toted up for labor and parts. Bow and then there will be some extra thing like a UPS return ship, or maybe an outside repair like a recone added to my work. That happens seldom enough I just make a note of it.

I can go through my check register and enter in columns check amounts I wrote for phones, for part accounts like fender or Peavey, rent, etc,

If you just look over your IRS schedule C, you can see all the categories of business expenses and stuff, and organize your records to suit that.


I have a wallet full of credit cards, there is one of the cards I use for the business and for nothing else. So I can read through my bills and see where all the charges went, some to CEDist, some to UPS, and so on.