Publication 62, Locksmiths
Reporting Tax and Related Issues

This section includes information on reporting sales and use tax to CDTFA, common deductions, and keeping records.

Reporting sales tax

You generally must report all your charges on your sales and use tax return. The amount you list for total (gross) sales must include all your charges for merchandise, labor, overhead, delivery, trips, etc., whether the charges are taxable or nontaxable. The tax due with each return is based on your total gross sales for the period, less any allowable nontaxable sales and deductions.

Collecting an amount for tax from your customer

When you make sales as a retailer, the law allows you to collect from your customers an amount equal to the sales tax you will owe on each sale. This is known as “tax reimbursement.” You may add the reimbursement amount to your charges, being sure to itemize the amount on your invoice or receipts (most retailers itemize this charge as “sales tax”). Or you may include it in the total price you charge. If you choose the latter method, you must post a visible sign stating, “All prices of taxable items include sales tax reimbursement calculated to the nearest mill,” or include a similar statement on your sales receipts.

Reporting charge and credit sales

The “total sales” you list on your sales and use tax return must include the price of items you sold on credit during the reporting period, even though you may not receive full payment until a later date. Tax is due on the full selling price. However, you may exclude amounts for insurance, interest, finance, and carrying charges from the taxable selling price you report for a credit sale, provided you keep adequate and complete records documenting those charges.

Example: In June, you rekey a customer's car door lock and cut two new keys for $150. Your customer pays you $100 and agrees to pay the balance in future months. Regardless of when you receive the balance due, the full $150 sale must be included in your tax return for the reporting period that includes the month of June.

Credit card sales

You should report credit card sales as if they were cash transactions. The service charge or “discount” you pay the credit card organization is not allowed as a discount or deduction for sales tax purposes.

Purchases subject to use tax

Merchandise that you purchase for resale and then use for another purpose is generally subject to use tax based on the purchase price. The use tax rate is the same as the sales tax rate in your location. You must report the cost of merchandise subject to use tax on your sales and use tax return under “Purchases Subject to Use Tax.”

For example, you issue a resale certificate to your supplier when you buy a case of ten deadbolt locks that you intend to sell in your shop. You:

Sell eight locks to walk-in customers, and
Install two locks in a house under a lump-sum contract.

You are the retailer of the eight locks, and you must pay sales tax to CDTFA on the amount you receive for them. You are the consumer of the two installed locks, as explained on Work Performed on Real Property: Houses, Stores, Office Buildings, and Apartments. Since you did not pay an amount for tax on the two locks when you purchased them, you now owe use tax on their purchase price. You must report the amount subject to use tax on the sales and use tax return for the period in which you used (installed) the locks.

Purchases from out-of-state vendors

Unless your purchase is for resale, you owe use tax on items you buy from an out-of-state vendor if the vendor does not collect an amount for California sales or use tax from you. Use tax is due on purchases of items, such as:

Materials you use rather than sell, including materials you furnish and install on a job as a consumer.
Supplies, such as cleaning solvent, lubricants, or office supplies.
Tools.
Store and office fixtures and equipment.

You must report the cost of these items as “Purchases Subject to Use Tax” on your sales and use tax return.

Credit against use tax liability for payment of another state's sales tax

If you were required to pay, and did pay, another state's sales tax on a purchase, you may take a credit against your use tax liability by:

Deducting the amount of tax paid under “Taxes Imposed by Other States” on your return. You can claim a credit up to the amount of California use tax due.

Please note: You may not claim this credit against your sales tax liability for merchandise you resell.

Common deductions

Nontaxable labor

As noted in the first two sections of this publication, tax does not apply to certain labor and service charges. If you include amounts for nontaxable labor in the total sales figure on your sales and use tax return, be sure to also deduct those amounts by listing them under “Nontaxable labor.”

Tax-paid purchases resold prior to use

You may take a deduction on your sales and use tax return if you pay an amount for California sales or use tax when you buy an item and then sell it in a taxable transaction before you use it in any way. Include the price of the item under “tax-paid purchases resold prior to use.” More information is available in Regulation 1701, Tax-paid Purchases Resold.

Bad debts

If your customer's check is not honored by the bank or if a customer purchases on credit and does not pay you, you may be able to take a bad debt deduction to recover tax you paid on the sale. The bad debt must be charged off for income tax purposes. If you do not file income tax returns or file those returns on a cash basis, the bad debt must be charged off in accordance with generally accepted accounting principles.

Your deduction would be limited to the portion of the bad debt on which you had paid tax on an earlier return. If only part of the unpaid charge was taxable, you must prorate the bad debt to determine the amount you can claim as a deduction. To prorate the debt, multiply the bad debt amount by the taxable percentage of the total charge (taxable portion of charge ÷ total charge).

If you collect payment from your customer after you have claimed the deduction, you must report and pay tax on the amount collected that applies to the taxable portion of your charges. If your charges included both taxable and nontaxable amounts, you must prorate the payment between those amounts to determine how much tax is due on the recovered bad debt.

Please note: The rules regarding bad debts are somewhat complex. Before you claim a deduction for a bad debt or pay tax on an amount you received after you claim a bad debt deduction, you may want to contact our Customer Service Center for help at 1-800-400-7115 (TTY:711). Detailed information is also available in Regulation 1642, Bad Debts.

Keep adequate records

You are required to maintain records that adequately document the amounts reported on your sales tax returns. Upon request, you must make these records available for examination by a CDTFA representative. If the representative is unable to verify your reported sales and tax amounts based on your records, you may be subject to penalties.

Your records should include those generally expected from a locksmith. Besides your summary records, you should keep all sales and purchase invoices, cash register receipts, repair orders, and any other documents that support the sales and use tax returns you have filed. To ensure that your records adequately support the amounts you report on your returns, you should:

Make sure your invoices and repair orders are complete and easy to read. Identify all parts you have furnished and describe the type of labor performed.
File invoices and repair orders in the same sequence as entered in your books.
Separately list in your books the purchase of resale inventory and purchases of supplies and other nonresale items.

How long should I keep my business records?

You should keep required records for at least four years unless we give you specific, written authorization to destroy them sooner. If you are being audited, you should retain all records that cover the audit period until the audit is complete, even if that means you keep them longer than four years. In addition, if you have a dispute with us about how much tax you owe, you should retain the related records until that dispute is resolved. For instance, if you appeal the results of an audit or another determination (billing), or you file a claim for refund, you should keep your records while that matter is pending.

Revision July 2026

Publication 62, Locksmiths Reporting Tax and Related Issues