Contract Sale - order 2024 updated agreements now / More on sales tax – California January 2, 2024

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Contract Sale - order 2024 updated agreements now / More on sales tax – California
January 2, 2024

THE CONTRACT SALE STARTS NOW AND RUNS THROUGH JANUARY 12, 2024

Join the Concierge Program before you order contracts and get additional 10% discount. Join here: https://www.kirschenbaumesq.com/page/concierge

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NOTICE:
The Standard Form Agreements have been updated for 2024; over 10 changes, some significant. Check with our Contract Administrator, Eileen Wagda, at 516 747 6700 ext 312 to see if your forms need updating. Keep in mind that updates are free for 6 months and half price for 12 months from your original order date. Requests for updates will be processed after the new orders are processed. The sale ends January 12, 2024; the sooner you order the sooner you will get the contracts. Please do not call requesting priority unless you are a Concierge Client or have paid for expedited service.

How to order: order at www.alarmcontracts.com - ordering is easy - order on-line during the sale and save thousands of dollars. Need help ordering? Call our Contract Administrator Eileen Wagda at 516 747 6700 x 312 for assistance. Concierge Clients can call our Concierge Program Coordinator Stacy Spector, Esq for assistance at 516 747 6700 x 304. Concierge Clients receive an additional 10% off the sale price. You can join the Concierge Program before ordering to receive the discount and you should take advantage of this program.
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  Contract sale  runs through January 12, 2024. This will definitely be the best deal of 2024. When you place the order the full price will come up. We will apply the discount manually when we process the order. Contracts will be delivered by email only. Just order what you need - we will check and apply the proper discounts.

Here's the deal:
  Buy 1 All in One Residential, Commercial or Fire All in One and get $100 off and $50 off Disclaimer Notice  save $150
  Buy 2 All in One forms and get $100 off first and $200 off second and $75 off Disclaimer Notice and $100 off alarm.com rider and $100 off the Honeywell Notifier rider.   Save up to $575.
  Buy 3 or more All in One forms and get same as above and $300 off the third form and $400 off the fourth form.  Save up to $1075.00 [Residential, Commercial, Fire].
   Buy 4  All in One forms and get same as above and $400 off the fourth form.  Save up to $1275.00 [Residential, Commercial, Fire, Home Automation]

  Commercial Mobile Surveillance Lease $1000. Save $250
  Fire All in One with Security Rider $1275.00. Save $300.00  Add the Commercial Fire All in One and the Commercial All in One and get $200 off each. Save $700.00
  Qualifier Agreement $1200.00   Save $300.00
    Digital Sign And Display Sales, Hosting And Service $437.50  save 50% $437.50
    Computer Consulting and Service   $437.50  save 50% $437.50
  Nationwide DIY with monitoring. $3500.00 save $1000.00
  Nationwide PERS with or without GPS tracking. $3500.00 Save $1000.00
All other contracts not listed above will be discounted 20% during the sale. Concierge Clients will receive an additional 10%.  save thousands

* Your order must be placed on line at www.alarmcontracts.com and received by our office no later than January 12, 2024 by midnight EST. Orders must contain valid credit card payment and be processed; you will receive confirmation. Fill out the order form; the full prices will show and we will apply the discount before processing the order.  Orders arriving after sale ends will be processed at regular published rates.  Orders will be processed in order received.  For Rush orders, delivered by email within 48 hours, add 15% - call Eileen to process.
Concierge Clients will receive their Concierge Program Discount on the Sale Price. Sign up for the Concierge Program before placing your contract order to receive the additional discount.
Does not include consultation or modification
What's our Guarantee policy re updates?
Free updates within 6 months of purchase*
Half price within 6 months to 1 year*
* applies to original purchase only

More on sales tax – California

Ken,
          Here are two more, California this time, sales tax questions....
          We are a licensed alarm dealer corporation doing business solely in California.
          We provide, install, repair and monitor burglary and fire alarm systems, and video systems, for both residential and commercial subscribers in CA, all of which systems we retain ownership of. In other words, these are what the industry refers to as "leased" alarm and video systems.
          We purchase the alarm/video equipment we install from a variety of vendors, and, because we are the ultimate consumer/owner of that equipment, and because we neither need nor have a "resale permit", we pay sales tax on that equipment, at the time of its purchase, directly to the vendor.
          Pursuant to a KK standard service agreement, we charge our subscribers an initial onetime fee to partially offset our costs to "setup" the system and service, and, thereafter, a monthly "service charge" (RMR) for the duration of the KK contract.
          For the "service charge" (RMR) paid to us, our subscribers receive the use of the installed leased equipment, and, depending on the subscriber's needs, monitoring service, repair service, mobile APP service, and/or communication pathway service (like alarm.com, Telguard, M2M, etc).
          At the end of the KK contract term, as provided therein, we may, at our option, remove or abandon the leased equipment.
          Because we are providing only a service, and not selling any equipment, we do not have a state "resale permit", nor do we charge, collect or remit sales tax on the initial "setup" fee, or on the ongoing "service charges" (RMR).
* Question #1: Should we be charging/remitting CA sales tax on either of these fees/charges? Secondly, fairly recently, some service providers (including Telguard, and Moultrie) have started to charge us CA sales tax on the communication pathway service and cloud services they provide to us.
* Question #2: Can you say upon what basis they are entitled to charge us sales tax on these services they provide to us?
Thank you..
Anon in California
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Response
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          I’m not sure what vintage form agreement you’re using but we the updated agreements do not leave you with the option of removing or abandoning the equipment at the end of a lease, or the communication device even in a sale. You have the option of removal or selling the equipment for the “agreed value” which is also set forth in the agreement, assuming you filled it out correctly. This is a huge issue, and advantage if you’re looking to retain an account, especially a commercial fire alarm.
          As far as your tax questions, I turned to Mitch Reitman for a response, and his response follows:

Ken,
          I see that our friend Anon has decided to take advantage of the great weather in California and has set up shop there. Poor Anon is “California Dreaming” if he thinks that his Sales and use tax strategy is going to fly with the California Department of Tax and Fee Administration (“CDTFA”). First of all Anon is trying to double talk his way out of compliance with the CDTFA Regulations. California law states that Retailers engaged in business in California must register with the California Department of Tax and Fee Administration (CDTFA) and pay the state's sales tax, which applies to all retail sales of goods and merchandise except those sales specifically exempted by law. The use tax generally applies to the storage, use, or other consumption in California of goods purchased from retailers in transactions not subject to the sales tax.  The law doesn’t say that a business can declare itself an “end user” and evade registration. The Tax in question is a Sales and Use tax, which means that even a business that simply purchases goods, has to register. Anon’s contention that “we are the ultimate consumer/owner of that equipment, and because we neither need nor have a "resale permit", we pay sales tax on that equipment, at the time of its purchase, directly to the vendor” isn’t going to sit well with the CDTFA. Why, because it’s a Sales and Use Tax Permit and because the State of California says so.
          Anon makes some other interesting statements, one is “We provide, install, repair and monitor burglary and fire alarm systems, and video systems, for both residential and commercial subscribers in CA, all of which systems we retain ownership of. In other words, these are what the industry refers to as ‘leased’ alarm and video systems.” The State of California does, in fact, tax leases, and would be glad to hear that Anon considers them as such. Anon should dust off a copy of the California Tax Code and turn to Section 1660(b)(2) which defines Leases as Continuing Sales and Purchase as follows …. the granting of possession by the lessor to the lessee, or to another person at the direction of the lessee, is a continuing sale in this state by the lessor, and the possession of the property by a lessee, or by another person at the direction of the lessee, is a continuing purchase for use in this state by the lessee, as respects any period of time the leased property is situated in this state, irrespective of the time or place of delivery of the property to the lessee or such other persons.  So, unfortunately for Anon, a lease is a “continuing sale,” and the payments are subject to sales and lease tax. Retaining ownership, does not get Anon around this regulation. Anon does try to put forth the argument that since they retain ownership…” nothing was sold. Although there is an exception to the above rule that allows a Lessor to pay tax on the equipment at time of purchase and exempts them from charging tax on the lease, it specifically states that that the personal property (must be) leased in substantially the same form as acquired by the lessor, or by his or her transferor, as to which the lessor or transferor has paid sales tax reimbursement or has paid use tax measured by the purchase price.  (Section 1660(c)(2)) If Anon wants to take on the state (whose accountants and lawyers are paid by the year), with his accountants and lawyers who charge by the hour, I wish him luck. Anon is going to have a hard time proving that alarm and video systems which his company has installed are “in substantially the same form as acquired by the lessor.”
          We take on State and Federal Auditors all of the time, but, when we do so, we go in armed with something better than our client’s definitions and semantics. Anon does contend that he charges an “initial onetime fee to partially offset our costs to "setup" the system and service.” Anon is going to have a hard time explaining to an auditor, or an administrative judge, that he leases equipment at his cost, and only partially offsets his setup costs. Does he really expect the State to believe that Anon is in business to ‘almost make money’? Anon’s next statement that he then “charges a monthly "service charge" (RMR) for the duration of the KK contract,” is an example of why we encourage our clients not to speak directly to taxing authorities. California does in fact tax service agreements (in Anon’s case a Maintenance Agreement).    In BOE Publication 119, Warranties and Maintenance Agreements-- Sales and use-- Taxability of persons and transactions-- Repair and installation-- Guidance on warranties and maintenance agreements - it states that a mandatory warranty or maintenance agreement is a contract that comes with a product and is included in the total selling price. Under a mandatory warranty, your customer does not have the option to purchase the product without the warranty. If your sale of the product is taxable, the mandatory warranty is also taxable. The warranty is usually included in the price of the item sold, but you may show it as a separate charge on your invoice. If you do, that separate charge is taxable (provided the sale of the associated item is taxable).  Anon has previously stated that he “charges a monthly "service charge" (RMR) for the duration of the KK contract…” He also has stated that only partially offsets his costs with an “initial one time fee’ and he implies that the “Service Contract, is where he makes his profit on the Lease or Sale. Even if the State accepts these far-fetched contentions, they are going to see exactly where he is getting his profit from. Anon alludes to this when he states that he gets “RMR for the duration of the contract.” While California does not tax basic alarm monitoring and excludes leases for simple burglar alarms when the “value of the equipment on the customer’s premises is low in comparison to the total charge…” My take from the limited information provided by Anon is that these aren’t “lick and stick” residential burglar alarms generating monitoring revenue, but rather, fairly substantial alarm and CCTV systems. For a number of reasons, Anon’s position isn’t going to fly.
          Anon then mentions that “some service providers (including Telguard, and Moultrie) have started to charge us CA sales tax on the communication pathway service and cloud services they provide to us.” He asks “Can you say upon what basis they are entitled to charge us sales tax on these services they provide to us?” Well, Anon, you have hit on a very hot topic in the Sales and Use Tax universe, specifically Software as a Service (SaaS) and Infrastructure as a Service (Iaas). Sales tax authority on SaaS transactions is still evolving. Some states have taken the position that SaaS transactions are a sale of software, reasoning that using software by electronically accessing it is no different than downloading it. Other states have deemed it a service based on the fact that no software is transferred. In some states, the taxability may depend on the specific facts and whether the object of the transaction is the use of software or some other purpose. Fortunately for Anon, we know what Telguard and other companies provide and can easily determine that they are not taxable in California due to the the context of the services provided by most industry providers (CA Reg.1502) i. Anon’s problem is that he refuses to register with the CDTFA. Since he is not registered, companies like Telguard, Moultrie, Alarm.Com, etc… don’t have a way to sell their products to him without charging him sales tax. He is in essence challenging his providers to determine the taxability of their product. Most states allow a vendor or provider to obtain a Resale Certificate from their business customers and leave it up to the customer to determine taxability. Since Anon isn’t registered, he can’t get a Resale Certificate, so he ends up paying tax on non-taxable goods and services. The simple solution is to register.
          Anon has another issue besides being poorly informed. The California tax is a Sales and Use tax. In all of the cases above, the tax should be paid by the end user. Anon is not the end user. By declaring himself the end user, Anon has also burdened himself with paying all or some of the sales tax on certain items or services. He could charge his customers and add it to the sales price. This is not only common practice, it is the proper way to handle it, and his “Kirschenbaum Agreements” specifically allow for him to do this. If Anon is declaring himself the end user on $500,000 of purchases, his is most probably paying in excess of $40,000 in taxes that he could pass through to his customers. More than enough to pay us for a long consultation session.
Mitch Reitman
817 698 9999 x 101
Reitman Consulting Group
Fort Worth, TX
http://www.reitman.us
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com