Welcome to WebmasterWorld Guest from 54.166.150.205

Forum Moderators: LifeinAsia

Message Too Old, No Replies

Sales Tax for website design in the U.S.

and to UK and US, do you include tax in quote?

     

DXL

5:01 am on Jun 16, 2005 (gmt 0)

Senior Member from US 

WebmasterWorld Senior Member 10+ Year Member

joined:Mar 9, 2002
posts:722
votes: 0


1. If you start a new web design business, and start selling websites to just people in your state, what type of taxes are you typically subject to? I'm guessing you would have to pay a state sales tax, in my area its around 8%

2. How can I find an account that specializes in work for web designers? I'd be nervous to hire someone who only did work for doctors and then they aren't familiar with any technical issues involved with designers and tax.

3. When you charge a client X amount of dollars, do you later tell them its going to be X plus 8% for tax? Or do you simply consider that the tax is part of the quote you gave them, and eat that fee yourself?

thanks!

DXL

5:03 am on June 16, 2005 (gmt 0)

Senior Member from US 

WebmasterWorld Senior Member 10+ Year Member

joined:Mar 9, 2002
posts:722
votes: 0


I'm sorry, I forgot to add something.

4. I know people who sell products online to people from outside of their state. They only charge sales tax to people who pay within their state. Does this apply to web design, meaning I only charge a sales tax to people in my state?

4:52 pm on June 16, 2005 (gmt 0)

Full Member

10+ Year Member

joined:Nov 16, 2004
posts:246
votes: 0


In Texas we don't charge sale tax on labor. A website is all labor. Don't know what the tax laws are in the rest of the world.
6:22 pm on June 16, 2005 (gmt 0)

Junior Member

10+ Year Member

joined:Apr 11, 2004
posts:143
votes: 0


Check with your local tax board. It may differ from state to state, but here in California, web services are not taxable, unless you deliver the files to the client on a CD. But if you merely build and host a client's site, none of it is taxable.

I wouldn't worry about finding an accountant that specializes in web designers. There are no "technical issues" regarding tax in our business. The accountant himself provides a service, so his tax requirements are no different than yours.

DXL

7:09 am on June 17, 2005 (gmt 0)

Senior Member from US 

WebmasterWorld Senior Member 10+ Year Member

joined:Mar 9, 2002
posts:722
votes: 0


Thanks for the feedback.

So if a guy owns a mechanic shop in Texas, he's only paying city and state taxes on the parts he sells, and nothing for the hourly labor he charges?

So what, if any, taxes or fees do you guys pay? And if you don't have any employees, do you even really need an accountant to handle your businesses finances?

2:30 pm on June 17, 2005 (gmt 0)

Junior Member

10+ Year Member

joined:Oct 27, 2004
posts:174
votes: 0


DXL: I'm in NY state. The state considers web design a non-tangible service, therefore no tax is collected. Since my company doesn't have employees yet, filing my taxes is really simple.

I sat down with an accountant at the beginning to sort through everything. When it's tax time I can file everything myself, instead of paying someone to do it. If you're not going to have employees it shouldn't be hard to do.

But you might want to sit down with an accountant for an hour or two just to talk things over. It can't hurt.

10:45 pm on June 17, 2005 (gmt 0)

Junior Member

10+ Year Member

joined:Apr 11, 2004
posts:143
votes: 0


So if a guy owns a mechanic shop in Texas, he's only paying city and state taxes on the parts he sells, and nothing for the hourly labor he charges?

That's correct. Technically, he's not paying the tax on the parts; his customer is. The mechanic would have a reseller's permit, which means he doesn't pay sales tax when he buys the parts. He charges the customer tax and at the end of the year, he has to report all of this taxable income and pay the government. So the money doesn't actually come out of his pocket. (My dad used to say that businesses are the government's unpaid tax collectors.)

Don't confuse sales tax with income tax. Income tax is another matter and will depend on your business entity. If you're a sole proprietor, GP, LLC or S-Corp, then the business income "passes through" to your personal income. That is, the business itself is not taxed, but you pay tax on all of the personal income you generate, including income (not profit) from the business. It works like so: total income less deductions = taxable income.

If you're a C-Corp, then the corporation is subject to pay taxes based on its earning (which vary from state to state.) You personally must pay taxes only on the amount of money that the corporation paid you as salary.

DXL

11:05 pm on June 18, 2005 (gmt 0)

Senior Member from US 

WebmasterWorld Senior Member 10+ Year Member

joined:Mar 9, 2002
posts:722
votes: 0


So it seems like the govt still gets the money anyway, just not in the form of a sales tax. That seems kind of rough that money not counted as profit has to be taxed as far as personal income. So if you make 25k in a year, and 12k of that went into business overhead, you're still getting taxed on the whole 25k. So out of the 13k left for you to live on, you'd lose a big chunk of that.

I'll ask an accountant about all this stuff soon. What about trade work, though? What if someone offers you $1,000 in car repair labor or goods (tires, parts) in exchange for a website. Would you still have to consider that as personal income and have it taxed?

3:53 pm on June 20, 2005 (gmt 0)

Junior Member

10+ Year Member

joined:Apr 11, 2004
posts:143
votes: 0


So it seems like the govt still gets the money anyway, just not in the form of a sales tax. That seems kind of rough that money not counted as profit has to be taxed as far as personal income. So if you make 25k in a year, and 12k of that went into business overhead, you're still getting taxed on the whole 25k. So out of the 13k left for you to live on, you'd lose a big chunk of that.

If you make 25k in a year and have 12k of legitimate deductions, then the remaining 13k is taxable income.

I'll ask an accountant about all this stuff soon. What about trade work, though? What if someone offers you $1,000 in car repair labor or goods (tires, parts) in exchange for a website. Would you still have to consider that as personal income and have it taxed?

Yes, you would, according to the IRS website [irs.gov...]

"The fair market value of goods and services exchanged must be included in the income of both parties."

1:28 am on June 22, 2005 (gmt 0)

Senior Member

WebmasterWorld Senior Member 10+ Year Member

joined:Apr 26, 2004
posts:778
votes: 1


DXL:

Don't call your state agency and ask for the answer. That is like calling the fox into the hen house and asking if he will take any of the chickens. They are greedy and will take every last cent you will send them rightfully or wrongfully.

In my state web sites are taxable as of last year, but only the initial building of a site. Work performed on a site that is already in existence isn't subject to sales tax. Also I never pay this tax in any other state but my own.

I would find a really good accountant, preferably one who has a legal background as well. Ask them what specifically is taxable and then don't pay a penny more.

My accountant discovered that some software that I implement would have been totally subject to sales tax for not only the software, but also implementation, training, customization etc. I found out if I invoiced separately this didn't qualify. So I invoice for just the software and then a separate invoice for the services or labor piece, which I then don't charge sales tax on because the law is worded that separate invoices allows this. Here is what the state told me when I called. They said that anything I do that is associated with the software is taxable and sales tax is due on everything. My accountant (who is a lawyer as well) pointed out the exact law to me and them and showed them they were incorrect. They backed down and now I invoice everything separately. However you can see if I didn't have this guy on my team I would have to collect a lot more taxes, which of course the state doesn't mind but my clients do.

Fortune Hunter

 

Join The Conversation

Moderators and Top Contributors

Hot Threads This Week

Featured Threads

Free SEO Tools

Hire Expert Members