One of the biggest questions that new business owners have is, “Do you charge tax on rentals?” It’s not always clear what the right move is, and failing to meet tax requirements can have serious consequences and penalties. It’s always best to thoroughly research what your company’s tax obligations are.
Is There Sales Tax on Rental Equipment?
You might think that there wouldn’t be any applicable sales tax on rental equipment because you aren’t really selling it. However, this generally isn’t the case. Most rentals are subject to sales tax, just like any other goods or services. Finding out the right amount to collect can be difficult due to state, city, and county tax rates varying.
While handling sales tax might seem like an additional burden when starting your equipment rental business, the process isn’t all that complicated. With effective software for managing your business, you shouldn’t have any trouble keeping up.
Sales Tax and Different Types of Equipment Rentals
When you’re considering if there is sales tax on rental equipment, you need to take a look at exactly what it is that you’re renting out.
Different categories can have different requirements and exemptions, and knowing ahead of time will save you a lot of trouble in the long run. Vehicles are one of the most prominent categories that have major differences.
Vehicles and other types of heavy-duty machinery can often fall under other tax schemes. In many states, they face specific taxes called excise taxes.
This tax can be on top of or in place of regular state, city, and county sales taxes. In general, vehicle rentals will have multiple taxes applied that will be very specific to individual jurisdictions.
Sales Tax in Different States
Of course, anything to do with taxes for your rental business is going to be affected by what state you’re in. In California, there is a sales tax on essentially every type of tangible property rental. There are also taxes applied specifically to motor vehicle rentals.
In Washington, there is both the regular sales tax and the Business and Occupation tax to consider.
Texas also requires sales tax to be applied to all equipment rentals. They handle motor vehicle rentals a bit differently. They’re exempt from the general sales tax but have another tax with different rates applying depending on the duration of the rental.
Colorado takes a different approach, considering the equipment rental business to be the end-user of the equipment. As such, there is no requirement for sales tax on rentals, except when the rental exceeds three years and the person renting is considered to be the end-user. There are applicable taxes on motor vehicle rentals, though.
In New York, there are some considerations when taking a look at rental taxes. While a sales tax is applied to rentals, this doesn’t apply to rentals where an operator accompanies the equipment. New York also has specific taxes that apply to motor vehicle rentals, including requirements for paying in advance for extended rentals.
In the end, the responsibility is on business owners to find out whether you pay sales tax on leased equipment in your state. With strict reporting requirements, you can’t afford to leave this up to chance.
Manage Your Equipment Rentals With Quipli
Equipment rental businesses are among the most lucrative businesses out there and can be implemented with limited capital investment.
Quipli provides comprehensive software for managing equipment rental inventory and presenting an attractive website to customers. With Quipli, you can easily manage orders, invoices, and inventory without the need for separate tools.
To find out more about Quipli and its features, please book a demo with us today.