Running the Business · Part 1
Sales tax for contractors: materials vs. fixtures. The CDTFA rule most plumbers get wrong
California treats a plumber as two different taxpayers depending on what is being installed. For materials, pipe, fittings, valves, solder, you are the consumer: you pay sales tax to the supply house and you do not charge the customer tax. For fixtures, water heaters, toilets, faucets, disposals, water softeners, you are the retailer: the state wants tax on what you sell the fixture for, and if your contract is a lump sum, on what the fixture cost you. Get this backwards in either direction and you are either overcharging customers with a tax you have no permit to collect, or under-reporting to the CDTFA and building an audit liability. This lesson gives the rule, the two lists, the seller's permit question, and how to write invoices so the numbers come out right.
What the full lesson covers
- Materials (pipe, fittings, valves, solder, hangers, anything that loses its identity in the building): you are the consumer. Pay tax to the supplier, build it into your price, and do not add "sales tax" to the customer's invoice.
- Fixtures (water heaters, toilets, sinks, faucets, disposals, water softeners, anything that keeps its identity as an accessory): you are the retailer. Tax applies to the price you sell the fixture for, or, under a lump-sum contract, to your cost.
- A plumber who buys fixtures tax-paid at the supply house and installs them under lump-sum contracts owes nothing further and does not need a seller's permit for those jobs (CDTFA annotation 190.2360, Regulation 1521(b)(4)).
- The moment you buy fixtures with a resale certificate, or list a fixture price on the contract, or bill "sales tax" on marked-up materials, you are a retailer with a seller's permit, returns, and tax due on the selling price.
- Supplies and tools you use up, thread oil, blades, gas, are consumed by you and taxed to you. Out-of-state and online purchases without California tax owe use tax at the same rate.
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More lessons in Setting Up the Business
- 1The entity is a one-way door: why you decide sole owner, LLC, or corporation before the license issues
- 2Sole owner vs. LLC vs. S corporation for a plumbing contractor: liability, tax, cost, and the small claims limit
- 3EIN, the business bank account, and separating the money: the first bookkeeping setup that survives an audit and a lawsuit
- 4City business licenses: every city you work in, the Los Angeles business tax, and the seven-day rule
- 5The insurance stack: general liability, commercial auto, the bond, and workers' comp. What each covers, what each does not, and who will demand it
- 6Sales tax for contractors: materials vs. fixtures. The CDTFA rule most plumbers get wrongYou are here
- 7Quarterly estimates, self-employment tax, deductions, and mileage: the tax calendar for a first-year contractor
- 8Hiring readiness: what has to exist before the first helper's first day
- 9Template: the business setup checklist, from pass letter to first invoice
- 10Template: the insurance requirements matrix. Who demands what, and the certificate that satisfies each one