Here’s the deal, y’all. Sales tax… It’s ANNOYING. But more so, it is confusing. Honestly, what tax thing isn’t confusing? Just send me a bill, IRS.
What is sales tax?
A sales tax is a consumption tax imposed by local governments on the sale of goods and services. Sales Tax is charged at the time of sale to the customer and then remitted to the proper jurisdiction.
Should you be charging sales tax?
Any business that sells “tangible goods or services” (i.e. toothbrushes for dentists or skin care for a medical spa), is, for the most part, required to collect and remit Sales Tax. The amount charged for sales tax varies by state and locality. The best way to determine your requirements for sales tax is to first ask your CPA. Second, if you’re not getting a clear answer from your CPA, consider calling your state’s sales tax office. Shockingly, they can be very helpful in determining which goods or services you sell might be taxable.
So… now what?
If it’s determined you’re selling goods or services that are taxable for sales tax, you’ll first need to obtain a sales tax registration from your state. You’ll then begin charging your customers the required rate of sales tax at the point of sale so you can remit the taxes online (usually monthly).
You’ll also want to obtain a resale certificate, which you’ll provide to the vendors who sell you the products that are then resold to your customers. Because sales tax should only be charged once (to the end user) you don’t want to pay sales tax to your vendor just to have your customer pay it again. The last thing we want is to pay taxes twice!
What about Use tax?
Sales and Use taxes tend to go hand in hand. Use tax is assessed when you purchase something online or from a vendor out-of-state and you were not charged sales tax as a result. The rate is usually the same as the sales tax rate, but applies for these out-of-state circumstances. The key here is to review your invoices and confirm the appropriate sales tax was charged.
What’s the bottom line?
Sales and use tax audits are not fun and can be a little scary. To protect your business and remain compliant, take some time to be certain about your sales and use tax exposure. Talk to your CPA, call your state sales tax department, or reach out to us, and we’ll direct you to the right place.