Importance of Proper Invoicing
The key here is to make sure that you are stating things separately on your invoices. When you are undergoing an audit, you will notice that the auditor routinely groups transactions together when they are listed as such on your receipts to your end clients.
For example:
- If you combine installation and the cost of the end product together, then the auditor will charge you sales tax on the transaction.
Why This Matters
The rule is clear and specific under Georgia law:
Itemized charges made for repair labor or installation labor are not subject to sales tax.
O.C.G.A. §§ 48-8-2(34)(B)(iv), 48-8-3(23).
Key Reminder for Businesses
- Always itemize labor separately from the product.
- Ensure clarity on invoices to avoid unnecessary taxation during audits.
Proper invoicing protects businesses from unnecessary Georgia sales tax on repair or installation labor by ensuring compliance with state tax law.
Frequently Asked Questions
Why is it important to separate labor and product charges on invoices?
Separating labor and product charges helps ensure you are not incorrectly taxed during audits. Georgia law exempts installation and repair labor from sales tax, but only when these are clearly itemized.
What happens if I combine labor and product costs on my invoice?
If installation or repair labor is lumped together with product costs, the entire amount may be subject to sales tax, even though the labor portion should be exempt under Georgia law.
How can proper invoicing protect my business?
Proper invoicing ensures compliance with Georgia tax law, reduces the risk of overpaying sales tax, and can prevent issues during audits by making labor exemptions clearly identifiable.
What specific law supports the sales tax exemption for labor?
Georgia law under O.C.G.A. §§ 48-8-2(34)(B)(iv), 48-8-3(23) explicitly exempts itemized installation and repair labor from sales tax.
What best practices should businesses follow when preparing invoices?
Always itemize labor separately from products, provide clear descriptions of each charge, and ensure invoices are detailed to withstand potential audits.