Check to the owner or business name, both legal?

Factual Questions
1

A few scenarios:

1)A licensed electrician comes to your home to do electrical work. When it comes time to pay the bill, he asks to make the check payable to his full name not the name of his LLC which he is the sole proprietor/owner.

2)A kitchen cabinet installed installs cabinets in your kitchen. When it comes time to pay the pay, he says “Make the check payable to me or ‘cash’ and I won’t charge state sales tax.”

3)A handyman performs work on your home. When it comes time for the bill, he has no paper work at all, and asks you to pay him in cash.

4)A guy knows on your door, says he will pave your drive way and gives you a contract to sign. The contract has a company name on it, but it clearly says that checks be made payable to his full name. There is no state sales tax or a line for it in the sub-total of the contract.

5)You go to a discount furniture warehouse. They will sell you the sofa, but when the invoice is done the salesman says he will not charge sales tax if you pay cash. But if you put it on a credit card, he has to charge you sales tax.

I’m not being naïve here. I suspect they want to not charge sales tax to make it cheaper for the buyer and in most cases don’t want to claim the sale as income if the check is written directly to a person. With the exception of #5, all the above are sole proprietor/owners. I’m not concerned with someone who has a partner or is trying to hide their income for other reasons, I’m just talking about what is legal for the actual sale to the buyer.

It seems the business has all the risk here, because they would be the ones who get audited. I’ve not heard of a home owner being audited for receipts to see if they are paying sales tax, since for personal income taxes there is no requirement to save receipts for personal items purchased that I know of. No receipts, there would be nothing to audit even if such a thing existed or occurred.

For the buyer of these goods and services, are they doing anything illegal in this transaction? Or does the entire thing rest on the seller? Could the seller be doing this to appear to be doing the seller a favor, but in reality they end up paying the sales tax and/or running it through their own business anyway and is that legal? As the purchaser of goods and services, isn’t it up to the seller to determine what should be charged sales tax and what shouldn’t be, because not everything has a sales tax on it.

2

It can be argued that helping a trader avoid their taxes is morally wrong and just spreads the burden to the rest of the taxpaying public. I doubt very much that it is actually a crime though, at least not here in the UK.

One argument against this practice is that, you will probably forfeit your right to claim recompense for faulty work or goods. If the sofa you you bought falls apart, you can take it back. The warehouse will ask for proof of when you bought it and you won’t have any, so you are the loser.

The guy who does my garden gets paid cash. I assume he pays his taxes… But it’s not my problem. If he doesn’t do a good job, I will find another gardner. If I bought a new sofa, you can be sure that I would want a receipt, which means that I would pay sales tax (20% here) and the warehouse would have to account for the sale on their tax return. If I paid an electrician in cash to install an extra power line, and he botched the work causing my house to burn down, I would be in a precarious legal situation as he would probably not be insured either.

3

Believe it or not, you usually get a receipt or an invoice marked “paid” when this happens.

Maybe the business has all the risk- but it’s not uncommon for a state to require a person to pay a “use tax” on items for which “sales tax” wasn’t paid such as those bought out-of-state. I know NY went after people who bought cigarettes from a company Virginia when the company’s customer records. And I knew someone who bought a large piece of furniture in NJ , had it shipped to NY and got a bill from NY for the tax. Are you the homeowner going to get audited to see if you are paying sales tax? No. Might you get caught up when the guy with the contract that says to pay him personally gets audited? It’s possible.

4

A business selling goods “under the counter” would ofter not issue a receipt, because that creates a paper trail that could lead to the tax man and large fines.

5

You would think so - but what I’ve usually seen is that they give you a handwritten receipt from a book rather than running the sale through a computerized cash register that also adds sales tax. It’s easy to make those handwritten receipts disappear- they’re not numbered or anything. Sometimes they screw themselves- I bought a very cheap car years ago from a junkyard. Obviously, I needed a receipt to register and title the car. The junkyard wrote “tax included” on the receipt and I’m pretty sure the taxman sent the junkyard a bill.

6

I believe the consumer is obliged to voluntarily pay the sales tax directly to the state, if for any reason the tax has not been added to the purchase price and paid by the seller. This would vary from state to state, according to the state’s tax laws. It is doubtfull there has ever been any meaningful enforcement of such a law, but it would speak to the “is it legal” part of the question.

For example, when you buy an automobile, the sales tax is not normally paid to the seller, but is assessed by the DMV at the time the purchaser titles and registers the vehicle.

7

If a business demands I pay cash I pay cash (or go elsewhere). If a business does not accept American Express I accept that as a condition of our relationship (or go elsewhere). When I renewed my PA driver’s license I had to return on a different day because they didn’t accept cash!

As for sales tax, I assume the seller is paying any necessary monies to the state. Pennsylvania requires me to pay them six percent of the selling price for certain items. I’m not required to charge the buyer that 6% specifically, but I’m required to (and do) pay it.

If I’m the only one around and I sell a $6.00 item (a are combination of ifs), rather than do the math I just charge them the six bucks. My accounting will see to it that thirty six cents from that sale goes to the state. Now, if the item is $600.00 then it’s worth the bother of “doing the math” (using the cash register) and collecting the additional $36.

8

It’s up to the vendor to pay the sales tax in every state I know about. The guy is just offering you a discount price and it’s up to him to pay the sales tax out of what he collects. He’s likely not doing it, and the state is likely no doing anything about it.

9

I always ask myself: if they are cutting corners here, where else are they also cutting corners? If they have no problem cheating the state out of some sales tax, will they also be willing to cheat me by substituting inferior products? If you can’t trust them to be honest about their income, can you trust them to stand behind their warranties? If they have no respect for laws about sales tax, will they have respect for laws that require them to have proper licenses and permits? Do I really want to do business with someone who practically admits up front that they are a shady character?

FWIW, there is no sales tax here in Oregon but construction contractors are subject to lots of legal requirements, including:

  • liability insurance
  • surety bonds
  • CCB licensing
  • worker’s comp insurance
  • payroll taxes
    Whenever I hear about a contractor who fails to do one of the things on the list, I always wonder which others on the list they also failed to do, and what that says about the how trustworthy they are.
10

By paying them with a check made out to ‘Cash’ or the person’s name or, even better, with actual cash means two things: One, they won’t charge you sales tax and two, they won’t declare it as income on their taxes. If it’s a check it’s more difficult because there’s a paper trail, but with cash it’s a no-brainer. They may claim that they’re doing you a favor by saving you the sales tax (which technically they are) but they’re doing themselves a bigger one by not having to declare the income.

The contractor will have a sales tax number which means he doesn’t pay sales tax when he buys supplies, but consequently he’s the one responsible for it and is supposed to charge you and pay that directly to the state. If he doesn’t and gets audited it’s his liability, not yours. If they find hundreds of checks made out to ‘cash’ it’s a red flag that he’s cheating on his taxes. They may question you (because your name is on the check) but it will merely be to confirm if it was for payment for work done, which again just goes right back to the contractor.

If it’s someone you implicitly trust doing the work (and it isn’t tens of thousands of dollars) then doing it under the table is very common and, IMO, not that unethical. Screw sales tax, it’s not their money to begin with. But there’s an obvious catch-22. If you have no proof of payment and there’s a problem with the work, it makes it much more difficult to pursue the workmen legally.

Beware of contractors who say they are doing you a favor by not bothering to get permits. Permits are not expensive and they are not merely a ‘tax’, they are a way of making sure that the workmen are properly licensed and do the work safely and legally.

11

The situations in the OP aren’t all the same.

  1. Hiring an electrician

The issue here is that if something goes wrong later, you need a receipt or something in writing that proves that you hired a licensed electrician to do the work. If it’s done wrong and there’s no proof that a licensed electrician did the work, then the insurance company might refuse to pay the claim.

Something going wrong with electricity in the worst case can result in things like multiple deaths and numerous properties burnt to the ground, so the potential liability issue here is rather large.

Paying cash and not getting a receipt leaves all of the liability on you. Paying with a check made out to the guy’s name can at least establish that he did the work, and shifts the financial liability to him.

  1. Kitchen installer says won’t charge sales tax if you pay cash

This is clearly an attempt at tax evasion. On the other hand, he’s the one responsible for paying the taxes, so I’m not sure that this is actually a legal issue for you.

  1. Handyman wants cash

This is pretty much the way it’s always done around here. The guy does some work, I give him some cash, and that’s it. I don’t know and don’t care if he pays his taxes properly or not. It’s not my problem.

This is a handyman we’re talking about here, not a contractor. A handyman isn’t a big business. It’s some guy working alone out of the back of his truck. Most don’t want the hassle of dealing with checks, and I’m cool with that.

  1. Paving contract sold door to door with no line item for sales tax

The sales tax is up to him to pay. If he doesn’t want to break it out as a line item on the contract, I don’t care.

  1. Discount warehouse not charging sales tax for cash

This seems like an odd one to me. Every discount business I have ever gone to has charged sales tax. There are some places that will give you a discount for cash, but that’s so that they don’t have to pay the credit card company their cut and has nothing to do with sales tax. Since they are the ones responsible for paying the tax, I’m not on the hook for anything. I’d expect the business to be shut down for tax evasion pretty darn quickly though.

12

The vendors are not **charging **sales tax. They are **collecting **it on behalf of the state as a convenience to the consumer. It’s a nuisance to the vendor to track it all (especially when it varies by county) and submit sales tax returns. If a vendor doesn’t collect sales tax (such as for an out of state sale) it is up to the consumer to pay the use tax to their state, assuming they live in an area with sales/use tax.

Some states are getting uptight about it, such as New York going after people who bought cigarettes out of Virginia, as mentioned above. Various states have also tried to get sales records from large online vendors like Amazon so they can bill people for the uncollected taxes. States are also grabbing it in the annual income tax return, where there’s no escaping it - you either save up all of your receipts for the year and add up the sales tax paid, or you do like 99.99% of the population and just plug in your adjusted gross income and that calculated use tax is added into your overall income tax.

13

Not paying taxes is certainly a crime in the UK. Penalties can include jail and massive fines.
It’s also risky to pay someone in cash, since the lack of financial records means you are helping them avoid tax.
In 2015, the Government announced “Tax evasion is a crime like any other. If people help a burglar, they are accomplices and criminals too. Now it will be the same for those that help tax evaders.”

14

If everyone did not pay taxes, then who would pay for all the things governments need to do? (Police, roads, bridges, courts, etc.)

They should pay their fair share of taxes - They are cheating you and I (We wind up paying more taxes!)

Do us all a favor and report them to the IRS.

15

I had a business where I offered skilled labor, no sales taxes involved in my state for such. I had a business name but used my personal bank account as my bank required a business license, free here, in order to have a business account. At first they would deposit a check written out to my business in my personal account. I used an accountant to keep track of money and taxes paid, so I wasn’t avoiding any due taxes. After a while my bank would start refusing to deposit checks written to my business into my personal account and I would go to the client’s bank and cash their check for cash. This became inconvenient so I would just ask for a check written to me or for cash. Again, this wasn’t to avoid taxes, it was so I could get paid. Yes I got a business license and business account eventually.

16

How does having a check made out to me affect the corporate shield if the money eventually ends up in my LLC’s account?

17

If you are commingling the LLC’s funds and your own the courts may treat the LLC as your alter ego. It generally requires a bit more than just accepting a check made out to your own name, but it would certainly be a factor.

ETA: In my state (Florida), the vendor is responsible for collecting sales tax and paying it to the state. If the vendor doesn’t “charge” me for it, that’s not my problem. The state only collects use taxes for purchases made out of state.

18

I am sure that HMRC would like everyone to pay their taxes, but I don’t see it as my duty to make other people pay their dues. I am not talking offshore accounts here, but a jobbing gardener, who assures me that he pays his taxes but prefers cash to save costs.

The consensus for both sides of the Atlantic seems to be - It depends…

19

Here in the US, there isn’t sales tax on all goods and services even in those states which have a sales tax. So it can be difficult for the buyer to know if tax even needs to be charged. Seems like the burden will still fall back to the seller. In other words, there can be situations where the buyer simply doesn’t know if what they are purchasing is subject to sales tax and is relying on the seller to have it notated in the invoice.

20

All good questions. The very unusual part of this and one I wouldn’t have expected is I don’t seem to see a correlation between those asking for cash or checks made payable to them personally and the quality of the work they do, length of years in business and come highly recommended. If those things alone were an indication of someone to avoid, it would be pretty easy, but that doesn’t seem to be the case. It seems to be more of an issue of dealing with a sole proprietor/owner. If I contact a company with 100 employees to do AC or plumbing work, this topic never comes up because of the way the company’s corporate is formed, that writing a personal check to an employee would be fraud to the company most likely.