Dropzones and Sales Taxes...

[Unstable 8]

Okay, just for fun I've been running a few capacity models on various Dropzones to see for myself how the DZO's think. Really interesting, but I've run into a problem and those who I've asked have yet to come up with a straight answer.

The short of it; What's the Deal with Dropzones and Sales taxes? I don't think I've knowingly paid sales tax on any jump ticket I've purchased, but I would assume that any DZ, especially those who advertise extensivly or have any sort of tandem base must come forward and pay a sales tax on their business. The DZO's I've talked to don't seem to have any planning on this...so how do they do it? Why don't we usually tack on the extra 7.something Percent when we buy our tickets or when a tandem goes up?

=========Shaun ==========

[skybytch 259]

In California anyway, sales tax isn't charged for "labor" or for a "service." A ride to altitude can be considered a service, therefore no sales tax needs to be charged.

But I'm far from an expert on sales tax so the likelihood of me being wrong on this subject is pretty high.

[RB_Hammer 0]

Here in Arizona, there is no sales tax on services...

"I'm not lost. I don't know where I'm going, but there's no sense in being late."
Mathew Quigley

[Unstable 8]

Are there any special taxes involved with running an aircraft in association with a service? (sorry, another can of worms...)

=========Shaun ==========

[CanuckInUSA 0]

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Here in Arizona, there is no sales tax on services...

Here in Canada there is a sales/service tax for breathing and exhauling (they like to double dip). Well not quiet that bad ... but give the Feds/Provinces a few more years and you just know they will be bring it in.

Try not to worry about the things you have no control over

[kelpdiver 2]

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In California anyway, sales tax isn't charged for "labor" or for a "service." A ride to altitude can be considered a service, therefore no sales tax needs to be charged.

seems accurate. But video/stills are often seen as a product and taxed.

[CSpenceFLY 1]

I know of some DZ that charge sales tax even though it is not required.How do you think that works out for them?

[tkhayes 126]

It's also a federal aviation rule thing. Taxes are already paid on the fuel etc, I do not remember exactly what it falls under, but rides in an airplane are not taxed by local govt's. Same as airline tickets.

Now a Tandem video, since you provide a DVD, VHS or film, whatever is taxable in most states, although I know many DZ's do not collect it.

[diablopilot 2]

Most DZ's I've worked for charge sales tax on videos since a physical product is received. Other than that and the obvious gear sales everything else is a non-taxable service.

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You're not as good as you think you are. Seriously.

[rushmc 18]

In Iowa a DZ here got nailed by the state a couple of years ago. He had to pay a few years back taxes on sports jump tickets (for which he now charges) Tandems are considered students and no tax is levied. (Don't ask me as I know it is screwed up)

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[mbondvegas 0]

To reiterate the already stated.

For the most part, state and local governments do not levy sales/use tax on services.

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I am not afraid of tomorrow, for I have seen yesterday and I love today.

[mbondvegas 0]

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I know of some DZ that charge sales tax even though it is not required.How do you think that works out for them?

In most cases, if they collected it and remitted to the state, their customers would be entitled to a refund (which in most cases would have to be requested by the DZ).

If the DZ collected the tax and indicated via receipt or any other "auditable" evidence that XX% of the cost was sales/use tax, but they did not remit the amount to the state, they might be facing fraud charges...which would require proof of intent to defraud either the customer or the state/local gov. At a minimum, they would be required to refund each customer the XX% or remit the amount to the state's unclaimed property (escheatment) division.

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I am not afraid of tomorrow, for I have seen yesterday and I love today.

[mbondvegas 0]

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In Iowa a DZ here got nailed by the state a couple of years ago. He had to pay a few years back taxes on sports jump tickets (for which he now charges) Tandems are considered students and no tax is levied. (Don't ask me as I know it is screwed up)

This DZO probably just needs a better tax attorney. Then again...maybe it is just easier/cheaper to collect and remit the tax.

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I am not afraid of tomorrow, for I have seen yesterday and I love today.

[tdog 0]

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Most DZ's I've worked for charge sales tax on videos since a physical product is received. Other than that and the obvious gear sales everything else is a non-taxable service.

Well, then they are booking it wrong... I unfortunately do many sales tax returns a month, so I see the rules and the forms.

The video is a service where a great deal of labor was used, and very little material goods, to provide a service to one customer. It should not be taxable.

Give you an example:

EXAMPLE A
A general contractor gives a proposal: "Build one each awesome patio with beer pong table, $1000".

The $1000 is NOT taxable, but the contractor has to pay sales tax to the hardware store where he buys the wood on the cost of the wood. If he uses a tax-exempt licence, he has to pay "use-tax" directly to the city/state because he bypassed the sales tax at the time of purchase. But still nothing to the customer.

EXAMPLE B
A general contractor gives a proposal: "Build one each awesome patio - $500 labor, $500 materials." The invoice has two line items, one clearly materials, one clearly labor.

The GC has to collect sales tax on the $500 materials only. If he paid $500 to home depot to buy the materials (no-markup) and paid home depot the sales tax at the time of purchase, he does not need to pay twice. If he paid home depot only $400 in materials and marked it up $100, he has to pay the sales tax on the $100 markup to the state. Or he can get a resale licence and not have to pay any tax at the time of purchase of materials but pay all the taxes direct. Either way, he must charge sales tax on the $500 and pay it to the store or state or both.

EXAMPLE C: A general contractor gives a proposal: "Build one each awesome patio - $500 labor, about $500 in materials, I will turn in receipts from the store for reimbursement."

His customer only pays tax by reimbursing him for the receipts of the store. No markup - super easy.

EXAMPLE D: A general contractor builds a pre-fab storage shed to be sold retail as a finished product. He must collect the sales tax on the whole thing, just as DELL collects taxes on the whole laptop you buy from the store - because a finished product is sold. Any delivery fees and/or assembly fees would not be taxable.

So - which model does the DZ video fall under??? I say "A" - the model where a service provider says: "$100 to make one real good video." The DZ has to pay taxes on the raw materials (blank DVDs), but the customer should not have to pay on the product because 99% of the costs are labor/service related and the DZ paid taxes on the materials to record the video.

Now - if the video was mass-produced to be sold retail and not made specifically for that customer, then the whole cost of the video is taxable because a "finished retail product" was made - similar to the shed example (D).