Is sales tax paid to an independent contractor for goods included as non-employee compensation on a 1099? If so, where are the sales taxes deducted on the schedule C?

Forum|Forum|6 years ago
June 6, 2019
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TurboTax Home & Biz Windows

Best answer by DanielV01

It depends. You can actually include just the flat amount that you paid the contractor, even if that amount includes "nontaxable" reimbursements such as sales tax or mileage reimbursements. Once you claim this amount, you don't need to enter anything else. Your contractor will have to deduct the sales tax on his/her Schedule C.

DanielV01

Employee

Just as a side note: You may wish to advise your contractor that they will need to deduct the sales tax from their income

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DanielV01Answer

Employee

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Natahleee

If the independent contractor/sole proprietor breaks out the sales tax on their invoice (listing the taxable items separately), should we be deducting that amount from their 1099 NEC amount? Our database 1099 report lists both the pre-sales tax totals and the net paid totals, so wondering if we should be backing out the sales tax amounts.

VolvoGirl

Employee

No you report the total you paid them. The total is your expense.

AmyC

Employee

The instructions have two different statements under State or local sales taxes.

If state or local sales taxes are imposed on the service provider and you (as the buyer) pay them to the service provider, report them on Form 1099-NEC as part of the reportable payment.

However, if sales taxes are imposed on you (as the buyer) and collected from you by the service provider, do not report the sales taxes on Form 1099-NEC.

The thought process is that if you include the sales tax, the person receiving the form will be claiming sales tax as a deduction, first statement.

If the service provider does not pay sales tax, it would not be included, second statement.

@Natahleee

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Natahleee

Okay, this is quite confusing. Per Publication 535 posted as of 2021, a business should NOT deduct state and local sales taxes they collect from the buyer to pay to the state AND they should not be including sales tax in gross receipts or sales.

So it seems that we should NOT be including the sales tax amounts that we (the buyer) paid to the independent contractor on the 1099 NEC forms, as those amounts are specifically reported to the CDTFA or the state government. Is that correct?

mglauner

If your contractor is charging you $600 for a project, for example, but stopped at Home Depot and bought a $50 part and paid $5 Sales Tax on the part, and you gave him $655, put $655 on your 1099-NEC.

He will report the $655 1099-NEC income, report $600 revenue, $50 for supplies, and $5 Sales Tax as expenses against the income on his return.

Hope this helps!