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Which party should pay the taxes?

Hi, We are a service company and provide services to other companies. We clean and maintain other companies restroom. We have a contract with a company to clean their restroom and provide all the paper supplies i.e. paper towels, soap, etc for their employees to use. They will pay us an X dollar amount for the service per month. Since paper supplies are not billable to the customer, which party is responsible for paying the taxes. I would assume we have to pay taxes on those paper supplies since it is part of our operating costs. or We shouldn't be paying the taxes, since the supplies are consume by the customer. We are currently not paying taxes on those supplies. What should we do?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

This question should be asked of your CPA, and is based on your state's sales tax laws, but since you are selling taxable and non-taxable services, you need to charge your client tax on items which require your company to collect sales tax.

Fail to charge leaves your company open to fines and penalties.

Secondly, you should issue an invoice to your customer for uncharged sales taxes; or make them aware failure to pay may make them subject to Sales Use tax and fines and penalties for not timely filing and paying those taxes.

Note: I have used NYS Sales tax rules as the basis of the answer. Mileage may differ depending on your state.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Alex-Wayne nailed this. In general, the party selling to the ultimate user is responsible for the tax. Some states will have rules around certain types of purchases, but taxes on supplies will most likely be your company's responsibility. Your situation is unique in identifying who is selling to the ultimate user, but I would interpret that as you are selling to the ultimate user of the product based on what you described.

Anonymous
(Director of Finance) |

If your contract with the customer includes the paper supplies as needed (no additional billing based on higher usage) (that is, not supplied to the customer on a stated cost-plus basis or other specified bill-through basis), then it is your cost in fulfilling the contract. What you [pay for the supplies (including tax, freight, etc.) is irrelevant (other in how you derive your pricing), and the tax, freight, and any other incidentals related to getting those product to your customer are your responsibility.
The other factor is that because you are not selling these items specifically, that isn't a resale situation, more of an operating cost.

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