4 Sales Tax Rules Dry Cleaners Should Know
- Sales Tax
- July 14, 2015 | Stephanie Faris
Businesses that sell products face a fairly straightforward tax process. For each item sold, businesses add a percentage-based sales tax as determined by local and state laws. Services, however, are far less obvious, since many services don’t require a sales tax at all.
Like other service-based businesses, dry cleaners pay sales tax on the items they purchase to perform their duties. In many states, the dry cleaner then performs those services without charging a sales tax to customers. But there are some instances where customers will pay sales tax when they pick up their dry cleaning.
1. Monogramming and embroidery
In some states, California and Connecticut, for example, monogramming and embroidery are taxable services. This is part of the sales and use tax that is often applied to assembling items for custom orders. In states where dry cleaning services aren’t taxed but monogramming services are, your dry cleaning business would be responsible for separating the monogramming charge from the dry cleaning charge if the customer requested both services be performed.
2. Supply purchases
Some dry cleaners place products on the counter to give customers a chance to purchase them. Your dry cleaning business may sell lint brushes, wedding gown storage bags, or leather restoration products, for instance. As with any business that sells products, your dry cleaning establishment will be required to pay sales tax each time one of those items is purchased, even if you rarely sell them.
3. Unclaimed dry cleaning
If you provide dry-cleaning services, you likely have a rack full of unclaimed clothing. Your local laws dictate how long you must hold these items and what you can do with them once the time limit has passed. Some states allow you to sell them, while others require you to either donate them to charity or dispose of them. If you’re in a state that allows sale of unclaimed dry cleaning and you choose this option, you’ll need to charge sales tax on each item purchased.
4. Where state law varies
Each state has its own laws when it comes to taxable services. Dry cleaners are required to charge sales tax on every service in some states, including California, Texas, North Carolina, and Florida. In many other states, isolated services are charged while others are not. New Jersey dry cleaners don’t charge services on dry cleaning and laundering clothing, but those same services are taxed when performed on non-clothing items such as tablecloths, curtains, comforters, and bed linens.
While your dry cleaning establishment may not be required to pay sales tax, you may be subject to a solvent tax. This fee is charged to businesses that use dry-cleaning solvents to offset the cost of cleaning up the contamination they cause. The tax is in addition to any sales taxes you pay on your purchase and is charged at the point of purchase.
Many dry cleaners will eventually deal with a situation where they must charge sales tax on purchases. When that happens, it’s important to have a system in place to calculate those items separately.
The good news for dry cleaning businesses is that they usually do business in one state, making it easier to keep up with laws than if they operated locations across state lines. Carefully study the laws in your own state to make sure you’re complying with the laws as they apply to your business.