On this episode of the podcast my guest, Amy Monroe, answers small business owners' sales and use tax questions.
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1. How to calculate sales and use tax for something that has a service and product component to it. - submitted by Reena Borwankar
For the answer to this, and other sales tax questions, check out Amy on episode 21 of the podcast.
2. What if you have your sales tax ID but have not made any sales? Do you truly submit $0? - submitted by Jamie
Yes, it’s called a zero return. You may get asked to file if a lot of time goes by and you have not filed anything. If you do get one of these letters you will need to file the past returns. Some states will charge you late fees for not filing. If you are filing those zero returns for a year (varies by state) the IRS will ask you to close your sellers account.
3. What about those good meaning people who tell you to put your product as a "service" simply because you made it, so that you can avoid sales tax? It's still a tangible perishable product, so...that doesn't seem right. - submitted by Susan Johnston
If you are providing a service but there’s a $2 widget involved to use the service to the fullest, you could end up having to pay sales tax on the service and the widget together.
4. If I bought materials from a wholesaler before submitting my resale ID to them, does that change how I file those items as business expenses? - submitted by Annika Paquette
You can pay the sales tax to the wholesaler and then when you turn around and sell the item you can take a credit (in many states) for sales tax paid. Alternatively if you purchased large quantities of wholesale product you can go to back to the wholesaler with your new sales certificate (window of time varies by state) and ask for the sales tax refund from them.
5. For weddings, we purchase items (paying the sales tax), craft them into things (like decor), and then mark them up (for our labor) and sell to our clients. What do we charge sales tax on? Do you charge sales tax on rentals too (like frames, vases)? - submitted by Stephanie Nafziger
The answer varies by situation - is it decor you can use again or is it something the couple will keep after the wedding? If you keep it after the event is over, you would be the consumer and because it’s staying in your storage and you paid sales tax when you first bought the items. If the client keeps the product, you charge sales tax on the difference of the cost between what you paid and what you sold it for.
Charge sales tax on rentals. The leasing of tangible goods is viewed the same as selling. You would have wanted to pay for these with a resale certificate. There are states that allow you to ay sales tax ahead of time so you do not need to collect sales tax when you rent them out.
6. I live in Hawaii and pay general excise tax. Is that the same as sales tax and should I be charging my clients the GE tax? - submitted by Jen Draper
Sales taxes are imposed on the consumer. In Hawaii and a few other excise tax states like New Mexico (gross receipts tax) and Arizona (transaction privilege tax), the tax is imposed on the seller, not the consumer. The seller has the right to pass that cost through to the consumer. If you pass that through, your tax basis for your general excise tax (GET) gets complicated.
7. As a wedding planner, if you have an inventory of decor/wedding items for clients to rent, are you required to charge sales tax? What about if services are being performed in another state than your home state? - submitted by Maria Karagiannis
It will depend on the state if you are required to charge sales tax. If you are packing up clients in other states, you will need to look into that specific state. If your presence in another state is to provide a service, that is typically a nexus-triggering event which creates a sales tax obligation. If this is a one or two-time travel you may not need to do the research but if this is a regularly recurring situation, it’s important to understand the rules of each state.
Have a state specific question? Reach out to Amy for personal guidance.
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Get in touch with our guest
Amy Monroe, Sales Tax Guru
Follow Amy on Instagram at @iamamymonroe
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