Hi HH,
Yes, if I understand you correctly.
Here are the three scenarios as I see them:
1. You change your invoice to reflect a $5000 rental, letting your client know (in writing!) that the invoice has been changed to reflect a re-sale tax status at the original all in price and that *they* will be responsible for paying any sales tax on the item in full on their end. Also, having them acknowledge that they have heard and agree to that in writing. I would think via an email response is fine.
2. You change your invoice to reflect a subtraction of the $441 in sales tax, and only a remainder of the original lease total of $4559. Then again follow the steps above letting them know etc.etc. In this case you refund the $441 to *them*.
3. You leave your invoice as is. You let your customer know that the sales tax collected by you will be forwarded to the appropriate agency, and that they should reflect a credit for themselves as such when they do their own sales tax reporting -- typically sales tax reporters have the option of taking a credit of sales tax paid on resale items against the sales tax they owe for turning around and selling those items. You pass along the $441 to the tax agencies as part of your own sales tax reporting.
Of course, you should check in with the particular laws of your state! But basically, in all cases, the state / sales tax agency is eventually going to get their money. What you are really deciding is if you are going to get an extra $441 or if your customer is going to get it. Your client letting you keep the $441 as a rental fee will most likely result in them paying that $441 or so again in sales tax somewhere else.
