I get asked a lot about Sales and Use Tax. So here is the CFOAndrew Intro on Sales Tax! Please note this is not an exhaustive list, rules can vary a great deal by state. I am also not touching on the “nexus” issue here. Every state has their own rules as to what constitutes you being “in” that state for Sales Tax purposes. Please contact us if you have specific questions for your situation.
What is Sales Tax and how is it different from Use Tax?
Sales Tax is what you charge on physical goods that you sell to an end user. Use Tax is effectively the same thing except paid by the purchaser, instead of the seller. Technically everyone is supposed to pay Sales Tax on all items they buy. If you buy something from someone in another state, they won’t charge you Sales Tax because they sold it to someone in another state (an exception to collecting Sales Tax). You are then supposed to report to your state that you bought an item and pay use tax (which is typically the same rate as Sales Tax) on the item. So, yeah, you did that, right? For sure!
How do I charge/collect Sales Tax?
If you are selling physical goods, you need to register with your state agency that regulates Sales Tax. Most states call this the Board of Equalization. This is not connected to your income tax, none of the filings are related and your CPA, unless you specifically ask, will not do anything with Sales Tax.
Once you register, you get a permit number, or re-seller’s permit. This lets them know that you are selling goods to end users. You then have to file Sales Tax Returns (how often you file varies with state and volume – could be monthly, quarterly, or annually) reporting your total sales less any non-taxable sales which then calculates the the amount of Sales Tax that you owe. Note that “non-taxable” here has nothing to do with income tax. More on what is non-taxable in a second. Assuming you calculated your Sales Tax properly as you sold items, you should have collected from customers the amount of money that this form says you owe. You then take the money you collected and send it to the BOE. If you want to make life easier, you can just pay Sales Tax without collecting it – build it into the price, so to speak.
What are non-taxable sales?
There are a lot of things that qualify, but the two big things are labor and out of state sales. So if you are doing a service business you don’t need to do anything with Sales Tax. If you sell something to someone who lives in another state, you also don’t collect it.
You owe Sales Tax on all sales to end users in your state of residence.
I want to buy things and not pay Sales Tax….
Once you have a re-seller’s permit, you can let your vendors know you have it. If you supply them, the number they will not charge you Sales Tax on the items you are buying. This is because you have “proven” that you are not an end user. If you have a re-seller’s permit, then you’ll collect Sales Tax on whoever YOU sell the items to.
So, bullet points:
-If you sell physical goods to people in your state, you owe Sales Tax.
-If you want to buy things without paying Sales Tax, you need to have a re-seller’s permit.
-If you have a re-seller’s permit, you need to file a Sales Tax return which has nothing to do with income tax.
Thanks!
