KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Comment on Florida sales tax / Specialty Contract Sale ending soon
January 17, 2024
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Comment on Florida sales tax from article on December 23, 2023
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Ken,
Stan’s email to you is typical of the misunderstandings that many people, including accountants, have of the tax code. In Stan’s case, he was audited and the Auditor apparently determined that he was a “contractor,” and, in Stan’s words, “was not a retailer,” and “no longer had a sales tax exemption.”
This is why I don’t install alarms, and alarm company owners shouldn’t practice accounting. Quite a bit was lost in the translation, the earth has gone around the sun a few times, and, while Stan has apparently been lucky for the last 37 years, times have changed. Stan’s business is in Virginia, which, while it does treat alarm companies as contractors for the most part, the State does, have some quirky rules. Alarm monitoring isn’t taxable in Virginia. In the mid 80’s, when Stan was last audited, many alarms were local ringers. When there was an event, they would ring a loud bell or siren, and eventually someone would call the police. Alarm companies were considered contractors. Most states don’t trust contractors to understand sales and use tax, collect it, and to file returns, so the Construction Rules allow contractors to pay the tax on materials at their distributors, and be done with it. Along came RMR and things changed forever. Alarm companies soon figured out that, especially for residential systems, that they could install a basic system for at or below cost, get a long-term monitoring agreement from the customer, and make up their lost profits with the RMR. Not a new concept now, but in the late 80’s and early 90’s is was revolutionary. The “builder market” emerged and alarm companies began pre-wiring homes for builders in the hope of getting a monitoring customer. The State of Virginia caught onto this very quickly and in 1996, they issued a Ruling (Public Document D 96-4) that made the security company the end user of the materials and required it to pay sales tax when it purchased the equipment necessary to install a monitored alarm system. This snagged a lot of companies that installed unmonitored alarms, or did speculative installs and pre-wires. Fast forward a few years and CCTV and Access Control Systems became more prevalent. These systems were typically marked up (no monitoring fees to subsidize the installation) so Virginia issued PD 13-108 in 2013 that made the end user liable for the sales tax. If Stan’s company is installing non-monitored systems, the rules that applied when he was last audited have changed. A company installing a system for which monitoring is not required, is not the end user of the materials and must charge sales tax on the selling price of those materials, or, obtain a resale certificate from the General Contractor (in Virginia). This is where Stan is getting some misinformation. He should be charging the sales tax to the customer, or getting a resale certificate from the general contractor. This is also the solution to what Stan is calling “double dipping. If Stan purchases items for non-monitored systems (or if he marks them up), then he should send a resale certificate to his distributor. He should not be paying sales tax on items that are taxable to the customer. As I mentioned earlier, most states don’t expect the typical sub-contractor to be collecting and remitting sales taxes, but, when they start marking materials up, or when they sell items that are taxable to the final customer, they have to collect and remit taxes.
Virginia is also one of the few states that do not tax Software as a Service (SAAS). Currently states are wrestling with companies that try to avoid sales and use tax on computer software by hosting the software and selling “access” to it. Many states have gotten wise to this and have started taxing these services as SAAS. Those states have determined that services such as Alarm.Com are actually SAAS and have begun taxing a portion of the “monitoring.” Alarm.Com responded by asking for resale certificates from their alarm company customers. If the alarm companies didn’t send back a resale certificate, Alarm.Com started charging them sales tax. As I reported last year, this got Alarm.Com off of the hook, but didn’t necessarily take care of the alarm company. In Stan’s case, Alarm.Com service would not be taxable in Virginia, so if Stan hasn’t sent them a resale (exemption) certificate, Alarm.Com may start charging him tax. If Virginia is like most other states, their Legislative Branch may pass a bill making SAAS taxable and then Stan is really headed for trouble. The biggest issue is when the auditor looks at the fact that his is paying his central station $4 and paying Alarm.Com $7, and determines that 60% of his $40 monitoring bill to his customer is taxable. This is why we advise our clients to know the rules, and charge tax on the taxable items before an auditor makes a computation for them. Since Stan’s accountants probably have no idea what Alarm.Com is, they may not be aware of future changes in the tax law.
Sound complicated, it is. This is why we monitor changes in the Tax Codes constantly. This is also a situation in which it is helpful to know the difference between a fire panel and a DVR. Some states consider alarm systems to be improvements to real property, some consider them to be personal property. Some states have different rules for residential and commercial, some for fire and intrusion. Monitoring is taxable in some states, but not in others. It is not a good idea to rely on the results of your friend’s audit, it may not even be a good idea to rely on the results of a past audit. Tax laws can be changed by State Legislatures, or they can be “clarified” by the taxing authority. Sometimes audits lead to litigation and a Judge decides.
We deal with a lot of tax controversy (audits) in our practice. Almost all of the tax issues are with state sales and use tax. Most of our cases are the result of alarm companies (or even their accountants) not understanding the tax code. We fight hard, but sometimes a taxpayer has gotten themselves into a situation where they have to write a large check.
Mitch Reitman
817 698 9999 XT 101
Reitman Consulting Group
Fort Worth, TX
http://www.reitman.us
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Specialty Contracts to expand your business – on sale this week
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You all know that K&K offers agreements and forms that are recognized as the gold standard in the alarm, security and fire alarm and protection businesses. K&K also offers other agreements that are closely related to your security business. You may already be engaging in these businesses, without a proper contract, or these contracts may give you the idea and impetus to expand your business to include these services.
The Outdoor Living Space agreement for outdoor kitchens, lighting, audio and video and fire features was inspired by AIN Group which has expanded its security program to the outdoor living space contractors [which would require a home improvement or general contracting license as opposed to an alarm license].
Other specialty form agreements include:
* generator installation and service,
* solar panels,
* digital signs,
* home watch
* answering service
These form agreements can be found in the miscellaneous section of Alarm Contracts at www.alarmcontracts.com.
K&K also has oil equipment installation and oil supply agreements. Call K&K Contract Administrator Eileen Wagda at 516 747 6700 x 312 or EWagda@Kirschenbaumesq.com for details and obtaining these oil contracts
To help get you started for the new year these forms will be on sale this week at 25% off list price. AIN members will get an additional 10% off [be sure to identify yourself as an AIN Member] and Concierge Clients will get another 10% off.
When ordering the full price will appear on the order form and will apply the discounts when processing the order.
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STANDARD FORMS Alarm / Security / Fire and related Agreements
click here: www.alarmcontracts.com
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CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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