Jewelry Stores Preface

Jewelry Stores Preface This publication is designed to help you understand California’s Sales and Use Tax Law as it applies to jewelry stores. For general information about sales and use taxes, your obligations as a seller’s permit holder, and how to file tax returns, see publication 73, Your California Seller’s Permit. For more information on how to file a return, please see our website at www.cdtfa.ca.gov, and click File a Return. This publication includes information on obtaining a permit; using a resale certificate; collecting and reporting sales and use taxes; buying, selling, or discontinuing a business; and keeping records. Please also refer to our website or the For More Information section for California Department of Tax and Fee Administration (CDTFA) information and all regulations and publications referenced in this publication. We welcome your suggestions for improving this or any other publication. If you would like to comment, please provide your comments or suggestions directly to: California Department of Tax and Fee Administration Audit and Information Section, MIC:44 PO Box 942879 Sacramento, CA 94279-0044 If you cannot find the information you are looking for in this publication, please visit our website at www.cdtfa.ca.gov or contact our Customer Service Center at 1-800-400-7115 (CRS:711). Customer service representatives are available to answer your questions Monday through Friday between 8:00 a.m. and 5:00 p.m. (Pacific time), except state holidays. Please note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted on the cover. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, decisions will be based on the law and not on this publication. Contents Chapter Page Taxability of Sales and Labor Charges 1 Taxability of Purchases 4 Credits for Losses and Returned Items 7 For More Information 10 Taxability of Sales and Labor Charges This chapter provides general information regarding the application of sales and use tax in your jewelry business. It covers how and when sales and use tax applies to sales of merchandise and to labor charges. It also covers repair parts, sales to out-of-state and foreign customers, discounts, trade-ins, credit sales, and the exemption for sales in bulk of monetized bullion, nonmonetized gold or silver bullion, and numismatic coins. Sales of merchandise The sale of merchandise in your jewelry store is generally subject to sales tax. Under the Sales and Use Tax Law, tax applies to retail sales of merchandise and other tangible personal property (your business purchases may also be subject to tax—see Taxability of Purchases). Barters and exchanges are also considered taxable sales. Sales of the following items are generally taxable: • New and used jewelry, watches, and clocks, • Watch bands, chains, metal bands, and • Custom-made jewelry or other fabricated items. Charges for labor and materials Fabrication labor Labor charges to create or produce items for customers are taxable, whether the materials are supplied by you or provided by the customer. Labor charges for individual steps in a creative process, such as engraving and sizing jewelry you sell, are also subject to tax. Some examples of fabrication labor include: • Manufacturing custom-made jewelry • Engraving on jewelry • Sizing rings Please note: Engraving and sizing of customers’ used jewelry is not taxable. For more information, see Regulation 1526, Producing, Fabricating and Processing Property Furnished by Consumers— General Rules. Repair labor and parts Repair Labor Labor charges to repair or recondition an item to restore its original use are not taxable. Examples: The labor charge to reset a stone in a customer’s ring is not taxable, since you are restoring the ring to its original use. On the other hand, the labor charges to create a different piece of jewelry, such as another ring or a pendant, from the materials in the ring are subject to tax. OCTOBER 2020 | JEWELRY STORES 1 Parts Generally, you are the consumer of the jewelry repair parts, such as findings, that are used in your repair services. Therefore, you are required to pay tax at the time you purchase the repair parts and your charges for repair parts are not taxable, unless: • You charge separately for the parts, or • The retail value of the parts is more than 10 percent of the total repair charge. In this instance, you must separate charges for parts and materials from any labor charges on your invoice. For more information, see Taxability of Purchases. Additional details are found in Regulation 1553, Miscellaneous Repair Operations, and Regulation 1546, Installing, Repairing, Reconditioning in General. Gift wrapping labor and materials Charges for labor and materials to gift wrap an item for a customer are taxable. For more information, you may obtain publication 106, Combination Packages and Gift-Wrapping. Sales to out-of-state and foreign customers A sale is generally not taxable when the purchaser does not intend to use the merchandise in this state and the item, as stated in the contract of sale, is delivered to an out-of-state or foreign destination. You must ship the item directly, using your own business vehicle, the U.S. mail, or a common carrier; or you must deliver it to a freight forwarder, customs broker, or similar export shipping agent. To claim an exemption for interstate and foreign commerce sales, you must retain records of delivery or shipment, such as shipping invoices, bills of lading, postage receipts, parcel post log books, and so forth. It is also recommended that you obtain a written statement declaring the property was purchased for use outside the state, and evidence of the customer’s out-of-state or foreign address. You should also keep proof of shipping insurance as further documentation to show the merchandise was actually shipped outside the state. Please note: If you deliver property outside of California to a customer you know is a resident of California, the property is regarded as having been purchased for use in California and is subject to tax unless you obtain a written statement from the customer that the property was purchased for use outside of California. For more information, see Regulation 1620, Interstate and Foreign Commerce. Discounts and trade-ins Discounts A discount is not subject to sales tax. Example: You sell a ring for $1,000 less a 10% discount ($100). The taxable price of the ring is $900 ($1,000–$100 = $900). You should clearly list the amount of discount, amount subject to tax, and the amount of tax on your sales receipts. For more information, see Regulation 1671.1, Discounts, Coupons, Rebates, and Other Incentives. Returned merchandise used as a trade-in If you require a customer to purchase other property of greater value to obtain a full refund credit for a returned item, the credit received will be considered as a trade-in. The value of the trade-in cannot be deducted from the taxable selling price of the new merchandise when you calculate sales tax due, and you cannot take it as a deduction on your tax return. Example: Your customer returns a diamond previously purchased for $5,000 and purchases a new gem priced at $10,000. If you allow full credit for the trade-in, tax on the new purchase would still be based on the full $10,000 selling price. Your invoice should separately state the $10,000 selling price and the $5,000 trade-in allowance. 2 JEWELRY STORES | OCTOBER 2020 However, if you refund the full purchase price of a returned item without requiring the customer to purchase more expensive merchandise, different rules will apply (see Credits for Losses and Returned Items). Credit sales Tax for an item sold on credit is due with the tax return for the reporting period in which you make the sale, even though you may not receive full payment until a later date. Tax is due on the full selling price. Example: You sell a $2,000 watch on credit in April and allow the customer to take possession of it immediately with a $500 partial payment. You would report the sale as taking place in April, even though you did not receive full payment in that month. Sales tax would be due on the entire $2,000 selling price. You may exclude amounts for insurance, interest, finance, and carrying charges from the taxable selling price. You must keep adequate and complete records itemizing these separate charges. Layaway sales Layaway sales generally are reported when the purchaser takes possession of the item sold. The initial payment is usually considered a deposit, not a sale. When you make the sale and transfer the item to the purchaser, you must include any layaway fee charged in the total amount subject to tax. If the sale is cancelled and the layaway fee forfeited, the fee is not taxable since no sale occurred. Example: You sell a $1,500 watch to a customer on a layaway basis in June, accepting a deposit of $300 plus a $50 layaway fee. The customer returns in July, pays the balance due, and takes possession of the watch. You would report the sale as taking place in July, with a taxable selling price of $1,550. Credit card sales Tax applies to sales paid with a credit card in the same way it applies to other sales. Tax is due on the full taxable selling price of the merchandise, regardless of any credit card organization service charges you may be required to pay.

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