Charging tax on parts, not labor

If you run a repair shop, you probably know that the tax on a repair bill is not always the tax on the whole bill. In some states, parts are taxable and labor is not, as long as the labor is listed on its own line. A card reader that adds tax to the full amount gets that wrong, and you end up fixing it by hand or overcharging the customer.

PlazaStack’s in-person card charge now handles this with one switch.

Why it matters at the counter

A card reader can add sales tax at your store’s rate. That works well for a shop that sells things. It does not fit a shop that sells a repair, where a single job mixes a part you sold and time you spent.

Take a $150 job that includes $40 of parts. The labor is $110.

• If the reader taxes the whole $150 at 6.25%, the tax is $9.38 and the customer pays $159.38.
• If tax applies only to the parts, the tax is $2.50 and the customer pays $152.50.

The difference is small on one ticket. Over a month of tickets, it adds up, and it shows up the day someone looks closely at a receipt or a return.

How it works

The steps on the charge screen are short:

1. Type the total for the job on the keypad.
2. With + Tax 6.25% on, turn on Parts only. The tax switch is on by default when your store has tax set up.
3. Enter the parts amount.
4. Check the total on the button, for example “Charge $152.50”, and take the card.

While you type, the screen shows Total with tax under the amount, so you can see what the customer will pay before you charge.

The tax is calculated on the parts amount and nothing else. Labor is whatever is left of the total.

The receipt then lists three things separately:

• Parts
• Labor
• Tax on parts

For the example above, that reads: parts $40.00, labor $110.00, tax on parts $2.50, total $152.50.

The customer can see exactly what they paid for, and so can you when you look back at the sale.

A Massachusetts example

Massachusetts is a clear case. Under 830 CMR 64H.1.1, sales tax applies to parts, and labor that is stated separately on the bill is not taxed. The sales tax rate is 6.25%.

The words “stated separately” matter. If the bill shows one lump sum for the job, the whole amount may be treated as taxable. Listing parts and labor on their own lines is what protects the labor from tax, and the receipt does that for you.

What to check for your own shop

Tax rules differ from state to state, and sometimes from one kind of repair to another. Some states tax labor on certain services. Some tax nothing on certain repairs. A few treat a warranty repair differently from a paid one.

Before you rely on any setting, confirm how your state treats parts and labor for the kind of work you do. A tax professional who knows your state can answer this in a short conversation, and it is worth having that answer in writing for your records.

The “Parts only” switch is a tool. It applies the tax the way you tell it to. It does not decide what is taxable in your state.

A few habits that help

• Write parts and labor separately on every estimate. The receipt only helps if the job was priced that way from the start.
• Enter the price you charge for the parts. The taxable amount is what you charge the customer for the parts, not what you paid for them.
• Use the same routine every time. If the cashier turns on Parts only for repairs and leaves it off for walk-in product sales, the books stay clean without extra work at the end of the month.
• Check one receipt a week. Pick a recent ticket and make sure parts, labor, and tax add up to the total.

The short version

Repair shops often need tax on parts only. Turn on Parts only, enter the parts amount, and the tax applies to that amount alone. The receipt shows parts, labor, and tax on parts on separate lines, so the customer and your records agree.

If you are not sure how your state handles this, ask your tax professional first, then set up the counter to match.