KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Do dealers need to charge for sales tax on monitoring in NJ [or your state]
August 18, 2021
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Do dealers need to charge for sales tax on monitoring in NJ
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Ken,
Are you aware if we as dealers need to charge for sales tax on monitoring in NJ? How about actual labor? I am trying to simplify out taxes each year and would prefer to NOT charge the customers sales tax. I asked our company accountant and he could not provide an answer.
Eric
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Response
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I try not to give tax advice. If I had to guess I’d say that I doubt NJ would miss an opportunity to tax its citizens. On another note it’s hard to believe that your company accountant, with at least one client in the alarm business, can’t answer this for you; Time for a new accountant. Could be that I’m watching too much Fox News and hearing Sean Hannity refer to Mark Levin as “the great one”, because that’s how I am starting to think of Mitch Reitman. I asked Mitch to respond to this and his comment is below. If you search for some humor you won’t find any. Nothing funny about taxes or accountants. Save Mitch’s number; seems like you’re going to need it.
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Ken,
Great question, we hear it all of the time. The answer is that it isn’t quite as simple as it seems. Each state has its own Sales and Use Tax Code so there are at least fifty different answers. This is complicated by the fact that States sometimes interpret their own laws in an arbitrary way. Sometimes companies try to extort loopholes in the tax codes and the situation winds up in court. Not only is this bad for the company, but it could take down other companies who are innocent bystanders.
Let’s look at the three parts of the question.
Are you aware if we as dealers need to charge for sales tax on monitoring?
Some states tax monitoring, some don’t. Some have different interpretations of monitoring. For example Indiana taxes the “transmission of data from one location to another.” For years, alarm companies believed that this included monitoring. We disagreed and requested a Technical Ruling from the State of Indiana. The request was extensive and defined monitoring and why we didn’t believe that the Code didn’t apply. The State agreed and, at least for our clients, monitoring is not taxable in Indiana. Some states do not tax monitoring at all, Texas taxes burg monitoring, but not fire monitoring. Some companies that install low cost or “free” systems in states that do not tax monitoring are finding themselves on the losing end of a challenge from the state seeking to reclassify some of the monitoring revenue as an installment sale, which would be taxable. It’s not good enough to look up the law, or even worse, just take the approach that others are doing it a certain way and that the state hasn’t challenged it. The best way to approach taxability of monitoring and other services is to check not only the statute, but also the case law. When one of our clients asks about taxability in a certain state we spend a few hours looking at the statute, and then review the case law. Most of the time the answer is clear, sometimes it is a bit gray. In those cases we request a technical opinion from the state. Once you have the technical opinion, or other ruling, you have the proverbial “Get out of jail free” card.
How about actual labor.
Some states tax labor on installations and service. Some tax labor on refurbishments, but not new construction. Some tax labor on commercial but not residential. Some tax labor if the alarm is considered personalty, but not if it is to modify an improvement to real property. Best to consult with your tax pro (or us) and get a clear understanding, otherwise you may end up sitting across the table from a state auditor discussing hundreds of invoices.
I am trying to simplify our taxes each year and would prefer NOT to charge the customers sales tax.
The problem with this is that your state needs this money to build roads and bridges and for Legislative junkets to Tahiti, and they don’t really care if they are making your life more complicated. The sales and use tax codes don’t allow you to choose whether to pay tax or even to allow you to pay it instead of collecting it from your customers. One popular misconception is that if you pay the tax on materials at the distributor, you don’t have to collect it from your customers. In most cases, this would not be correct. Sales and use taxes are generally focused on the end user who in most cases will be your customer. It can be devastating for a company to find out that the $1 million of equipment that they purchased from their distributor and paid taxes on over the last three years was actually $2 million of products sold to (and used by) their customers and that the company now owes an additional $80 or $90 thousand dollars in sales and use tax that they have no way of collecting from their customers.
Tax audits are costly, even if you win. States are hungry for revenues and an auditor’s job is to shoot the wounded. It is best to have a firm understanding of the taxability of your goods and services before the tax man sashays through your door.
Mitch Reitman: Phone 817-698-9999 XT 101
Reitman Consulting Group
Fort Worth, TX
817-698-9999
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
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