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If we do not register to pay sales tax and do not get exemptions from our suppliers,is it legal to not charge our customers sales tax?

Full Question: If we do not register to pay sales tax and do not get exemptions from our raw material suppliers but elect to pay sales tax on the raw materials and not charge our customers sales and use tax is that legal?

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Answer:

Diane Yetter photoIn North Carolina, the determination of the tax rules to cabinet makers depends on the nature of the contract you will have with the customer. Cabinetmakers who fabricate and sell cabinets to homeowners, contractors and others for use in North Carolina are liable for collecting and remitting the general rate of State tax and any applicable local sales or use tax on the sales price of such property. This includes charges for any services that go into the fabrication, manufacture or delivery of the cabinets without any deduction there from on account of the cost of the property sold, the cost of materials used, labor or service costs, interest charged, losses or any other expenses whatsoever. Any cost of labor or services to install or affix the cabinets when separately stated on sales invoices given to customers at the time of sale and in the vendor's records shall not be included as a part of the sales price. In these types of contracts, the cabinetmaker should issue a resale certificate to its suppliers and not pay tax on the purchase of the materials used. However, if the nature of the contract is a performance contract, then the cabinetmaker is considered a contractor and has the liability to pay tax on its materials when they are purchased but no sales tax is charged to the customer. A Performance contract is one pursuant to a construction or performance-type contract with or for the benefit of the owner of real property to install or affix tangible personal property, including cabinets, in or to real property. In determining if a transaction constitutes a performance contract, the tenor of the agreement is for the contractor to perform a job, retaining the right to control the means, the method, and the manner of accomplishing the desired result. A performance contract does not provide for a sale of specific items; rather, the contractor agrees to furnish the necessary materials, labor, and expertise to accomplish the job. With a performance contract, responsibility for the job and title to the materials purchased by the contractor remain with the contractor until the job is completed and accepted by the purchaser/owner. The contractor is liable for accidents or injury at the job site and loss or damage due to vandalism,neglect, theft, and fire.

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