SALT Report 2156 – The New Jersey Division of Taxation issued guidance regarding a security company’s purchase of handheld radios that are used by its employees on the premises of their clients. In this case, the security company leases handheld radios from a leasing company and the security company’s clients reimburse them for the monthly lease. Since the security guard company is charged sales tax on the monthly lease by the leasing company, they requested guidance as to whether they should charge tax on the reimbursement fees they send to their clients.
The Division responded that in most cases a seller may purchase goods and services that will be resold to their customer without paying tax by issuing a resale certificate to the seller. However, according to the facts presented the security company is not reselling the radios to their clients. Instead, the security company is using the radios in the performance of the security service and, therefore, the security company must pay tax when leasing the radios from the leasing company.
Additionally, since the radios will be used by the security company’s employees on the premises of their clients, the lease of the radios is an expense that the security company incurs in order to provide those services. Therefore, the charge for the radios to the client becomes part of the receipt for the taxable security service and is subject to tax. This is the case whether the amount is stated as a pass-through, a markup, or as one lump-sum charge coupled with the charge for the taxable security service.
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