I recently noticed that my vendor of car wash chemicals is charging me tax on some products. They state that i need to pay tax on those items, even though i have a resale certificate. They are charging me it on Tire shine, and Tripple foam. Though they are not on wax. I am located in Florida within the United States. My question is, shouldn't i be exempt from paying them tax on something that my end customer will pay on as well?
Thank you in advance
Florida sales tax is a royal pain in the *ss for car washes and it can suck in the vendors into the mayhem. This vendor likely got some bad information from their accountant or the Florida Department of Revenue (DOR). I'm a CPA/Attorney that does almost nothing but defend businesses for sales tax. The short answer is a car wash giving a resale certificate for all products purchased can end up getting in trouble when audited if they don't track the use tax liability on which of those products are not part of a taxable resale to customers. But the short answer is confusing. The longer answer starts with what the Florida based car wash should be charging tax on. If anything stays on the vehicle, then the whole car wash charge is subject to sales tax. So wax, tire shine (if the chemical stays on the tire), leather/dash conditioner, etc all stay on the vehicle. So when any of these products are put on the customers vehicle, then 100% of the price charged to the customer is subject to sales tax. You can NOT separately line items these charges and avoid tax on the whole wash. If the customer gets a basic wash or any wash that doesn't have products stay on the vehicle (water does not count), then the car wash doesn't have to charge sales tax. With these rules in mind, this controls what the car was needs to be paying sales tax on when purchasing inventory. Anything that is going to be resold as taxable to the customer can be purchased with a resale certificate, thereby avoiding paying sales tax. The theory behind the law is only the final consumer should pay sales tax. So the wax, tire shine, leather/dash conditioner can all be purchased tax free, then the customer pays sales tax when you charge tax on the whole wash. The tax only applies once, to the final customer. This is the easy part. The
soap and products that go on the car but don't stay on the car when the customer drives away is a little more complicated, which is the confusing area the vendor here is has stepped into. When
soap is used in a wash with products that stay on the car (e.g. wax), then the whole wash charge is taxed and the car wash technically does not owe sales or use tax on that
soap. However,
soap used during a wash that is not taxable (e.g. basic wash), will be subject to tax to the car wash because the car was used the
soap when performing a non-taxable service. In other words, the car wash itself is the final consumer and owes the tax. That means that some of the
soap purchased can be purchased tax free and some the vendor should be paying tax on. Very confusing! Most car washes pay sales tax to the vendor on the products that don't stay on the vehicle, like basic
soap, which is the easy method. But the car wash ends up paying sales tax on some products that are resold with sales tax to the customer, in other words the car wash is over paying sales tax. It is an accounting problem to try to track products that are something resold taxable and sometimes sold without tax. Some big car washes have systems that can track this and they don't over pay their tax. Is this starting to make sense? Now, back to the vendor. The vendor technically is off the hook for any tax if the car wash gives them a resale certificate, but many vendors are terrified of the FL DOR. So some refuse to tax resale certificates for items like
soap that might not be resold as taxable by the vendor, wrongly thinking that it is not appropriate to accept the resale certificate. Unfortunately, the car wash cannot force the vendor to accept the resale certificate. However, the car wash can take a credit for sales tax paid on inventory that was re-sold as taxable to the customer, if they have a good accounting system to track it. Like I said... this is the long answer, but I hope I answered your question. I don't mind sharing a call with the vendor, if that might help. If you have any more questions about Florida sales tax, then fill free to reach out. As you can see from this answer, I don't mind sharing knowledge and give free initial consultations. You can contact me at 813-775-2131 or
JamesSutton@FloridaSalesTax.com.
