When Should You Charge Sales Tax?
Taken on a state by state basis, electronic upgrades such as home theaters and security systems are considered capital improvements or personal property and not subject to sales tax, but sales tax applies for monitoring and service contracts.
Even though integrators have to pay sales tax when they purchase equipment, in most states they cannot charge sales tax for installations.
According to legal expert Ken Kirschenbaum Esq. of Kirschenbaum & Kirschenbaum, electronic systems installations such as home theater and alarm systems are considered personal property or capital improvements and, therefore, not subject to sales tax.
He specifically refers to language that should be in your contract with the homeowner that provides the installed equipment remain personal property, meaning the equipment would not be a capital improvement.
“For tax purposes, the tax department is going to make its own determination whether the installation is a capital improvement, in which event it would not get taxed,” he says, advising integrators to get capital improvement certificates from the homeowners and not charge the tax.
Sales tax does, however, apply for recurring revenue from security monitoring and service contracts, according to Kirschenbaum.
Jason has covered low-voltage electronics as an editor since 1990. He joined EH Publishing in 2000, and before that served as publisher and editor of Security Sales, a leading magazine for the security industry. He served as chairman of the Security Industry Association’s Education Committee from 2000-2004 and sat on the board of that association from 1998-2002. He is also a former board member of the Alarm Industry Research and Educational Foundation. He is currently a member of the CEDIA Education Action Team for Electronic Systems Business. Jason graduated from the University of Southern California. Have a suggestion or a topic you want read more about? Email Jason at [email protected]
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