TowingBossPro Blog — Invoicing & Payments

Sales Tax on Tow Invoices: What to Ask Your Accountant

Sales tax is one of those topics most tow operators would rather ignore. But getting it wrong can mean owing tax you never collected, or collecting tax you didn't owe and creating customer complaints.

This article won't tell you what's taxable where you are, because it varies. It will help you ask the right questions and apply the answer consistently.

Why This Varies So Much

A clean month-end review, as in Month-End Billing for Tow Accounts: Reviewing Every Call Before It Goes Out, depends on invoices being right the first time, and tax is part of that. Whether towing, storage, roadside service and related charges are taxable depends on your state and sometimes your city or county. Some places tax tows, some don't. Some tax storage differently from towing.

Rules can also change. What applied when you started your company may not apply today.

That's why the only right answer comes from your accountant or tax authority, not from another tow company or a forum post.

Your payment processor and your invoicing system won't decide this for you. They'll apply whatever you set up, so the responsibility for setting it up correctly stays with you and your accountant.

Questions to Ask Your Accountant

Bring a list of the services you actually invoice: light-duty tows, heavy-duty tows, roadside calls like jump starts and lockouts, fuel delivery and the fuel itself, winch and recovery time, storage, transports and any parts or materials.

Ask, for each one: is it taxable here? Does it depend on the customer, such as government agencies or businesses that may be exempt? Does it depend on where the call started or ended, especially for tows that cross city, county or state lines?

Also ask what records you need to keep for exempt customers, and how often you need to file.

Bring a few real invoices to that conversation. An accountant can answer much more precisely when looking at an actual tow with storage, miles and a roadside add-on than when asked a general question about "towing."

Set Up Tax on the Right Lines

Once you know the answers, set sales tax on the specific lines that need it. TowingBossPro lets you apply sales tax to the invoice lines that need it, so a storage line and a towing line on the same invoice can be treated differently if your rules require it.

That's why itemized invoices matter for tax too. If everything is lumped into one line, you can't tax one part and not the other.

Set it up once and let the system apply it the same way every time, instead of having staff decide on each invoice.

Test it. Create a sample invoice with every type of line you use and check that tax lands where your accountant said it should. Ten minutes of testing beats months of incorrect invoices.

Exempt Customers and Accounts

Some accounts, such as government agencies, may be exempt from sales tax where you operate. If so, mark those accounts correctly and keep whatever documentation your accountant says you need.

Check new accounts when you set them up. Asking about tax status at the beginning is much easier than correcting invoices later.

If an account claims exemption, get it in writing per your accountant's guidance before you stop charging tax.

Keep exemption paperwork attached to the account record or filed where anyone in the office can find it. If you're ever asked why tax wasn't charged on certain invoices, you'll want to answer in minutes, not days.

Explaining Tax to Customers

Customers sometimes question tax on a tow invoice. A clear invoice that shows tax only on the lines where it applies answers most questions. If someone asks, explain that it's required by local rules and that you charge it consistently.

Never waive tax as a courtesy. If it's owed, you owe it whether you collected it or not.

If you discover you've been charging tax incorrectly, talk to your accountant about how to correct it rather than quietly changing things.

Train the office on the basics too. They don't need to know tax law, but they should know which accounts are exempt and why, so they can answer a customer's question without guessing.

Reviewing Tax Collected

Reports showing what you invoiced and collected make it easier to hand your accountant the numbers they need at filing time. Review them periodically to make sure tax is being applied as expected.

Sales tax isn't exciting, but it's part of running a clean business. See how sales tax fits with line items, payments and reports on the towing invoicing software page for TowingBossPro.