How California Sales Tax Applies to Locksmiths
- Jan 23, 2015 | Gail Cole
Figuring out how to open a lock without a key is tricky. Figuring out how California sales tax applies to the work of a locksmith may be even trickier, since locksmithing involves both taxable and non-taxable transactions. The key to success is knowing when to apply tax and when to not.
Generally, the work of a locksmith fits into one of three categories:
- Sales that do not involve labor or services.
- Jobs that involve labor or service only.
- Jobs that involve labor or services and charges for merchandise or materials.
As a rule of thumb, California sales tax applies to the transfer of tangible personal property and certain service charges—typically “charges for fabrication labor.” Installation and repair services are generally exempt from sales tax in California.
Fabrication services include the following:
- Making new keys by duplication or cutting by code.
- Making an “old key” to re-key a lock, since the “old key” is actually a new key made to open an old lock.
- Installing locks or alarms on new personal property. For an automobile to be considered new, work must be done on the vehicle within 60 days of its registration date.
Installation and repair
Installation service charges are exempt from sales tax. Materials installed or used for installation may be subject to tax.
Labor for repairs is not subject to sales tax. Merchandise provided in the course of repair, when separately stated, is generally subject to tax. Repair work includes the following:
- Making an “old key” to re-key a lock (when you do not provide the “old key” to the customer).
- Opening a lock.
- Replacing locks in used personal property (as opposed to new personal property).
- Servicing a safe.
If that seems straightforward enough, consider this: The taxability of trip or service charges varies depending on the nature of the trip. For jobs including both taxable and exempt charges, part of the trip charge is taxable and part of it is exempt. Warning! Mathematical skills are required to determine how much of the trip charge is subject to tax.
Things get even more complicated when you consider that locksmiths purchase some goods for use and some for resale. Exemption and resale certificates are required—and the right form must be used for an exemption to be valid.
The California State Board of Equalization has published a “general guide to the Sales and Use Tax and Regulations as they apply to locksmiths.” It is thorough, extremely informative, and does its best to provide the key to sales tax compliance for locksmiths.
The key to sales tax compliance for businesses filing in more than one tax jurisdiction is automated sales tax Software-as-a-Service (SaaS). Learn more.