Re: [SL] Non-taxed parts in a taxed assembly getting taxed

[Rich S. <rsh...@ap...>]

On Mon, 16 Feb 2009, Michael Hasse wrote:

>    In our neck of the woods certain specific types of labor spent doing
> things like programming are tax exempt.  Other types of labor, and
> components, are taxed.
>    Our assemblies in this case include a fair amount of custom programming
> time which should not be taxed, and with that being the bulk of the total,
> I can assure you our customers notice if they're getting taxed on the
> whole amount!

Michael,

   IANAA. However, in my naivety I see the programming efforts (labor) as
separate from the individual physical components and labor that combines
them into a single assembly. Why not have the coding be a separate line item
on the invoice (and as a separate inventory item)?

   A former neighbor had a nice business of designing and building sawmill
controllers as well as writing the custom software to run them. Before the
timber industry out here virtually collapsed under court challenge (that's a
discussion for another time and place), sawmills that were constructed to
saw large, old growth Douglas fir logs had to be retrofitted to cut smaller
trees and of different species. Hence, his business.

   Considering that his custom saw controllers (which his wife built in the
garage) could be programmed for different size logs and different species,
the coding was separate from the physical controller assembly.

   I assume that in your case, a customer could have you later write
different software that would work with the same physical assembly you sold
them. Hence, separating the two is easily justified and resolves the tax
issue.

Rich

-- 
Richard B. Shepard, Ph.D.               |  Integrity            Credibility
Applied Ecosystem Services, Inc.        |            Innovation
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