How to Handle Sales Tax

A question was recently raised about how to handle sales tax and what items we sell are taxable. The following is an outline of the issues related to sales tax and how sales tax related transactions should be handled.

Q: Are drug testing kits sold to clients taxable?

A: Retail sales of tangible personal property in California are generally subject to sales tax. Examples of tangible personal property include such items as furniture, giftware, toys, antiques, clothing, and in an AccuDiagnostics location, supplies, kits, equipment, etc. In addition, some service and labor costs are subject to sales tax if they result in the creation of tangible personal property.

In some instances, retailers must pay use tax, rather than sales tax, to the Board. The most common example of a purchase subject to the use tax is a purchase of an item for use in California from an out-of-state retailer. Out-of-state retailers who are engaged in business in this state are required to collect the use tax, whenever applicable, from the consumer at the time of making the sale.

The tax rate for sales and use taxes is the same.

Some sales and purchases are exempt from sales and use tax. Examples of exempt sales include, but not limited to, sales of certain food products for human consumption, sales to the U.S. Government, and sales of prescription medicine.

Q: If we sell kits or other supplies and accessories to a client, how should we handle sales tax?

A: Obtain the sales tax rate for your county and multiply this percentage amount x the items subject to sales tax and collect this amount from your client. The taxes collected from the sale of taxable items are NOT subject royalties or advertising fees.

Q: After I collect the taxes what do I do with them?

A: The money you collect for sales tax is NOT yours but is held in trust for the State of CA or NV. Our outsourced accountants will prepare and file a sales tax return with the State Board of Equalization at which time you remit the funds held in trust to the State.

Q: Do I need a sales tax permit?

A: Yes. Please contact the State Board of Equalization and file an application for a sales tax permit.

For future reference, this posting has been posted in the Q & A section under Operations in FranConnect.