Guest post by AccountantBridge.com
Don’t make a costly mistake when it comes to sales tax—all business owners need to know what their obligations and responsibilities are, not only in their respective state, but where they ship their products or provide services.
A sales tax audit can be a costly audit for a business owner. Sales tax is considered “trust fund” money—your business is collecting the tax in “Trust” for the state or local government. Your business is only the intermediary responsible for the collecting and remittance of the funds on behalf of the government. For this reason, as the owner of your business you need to know that, whether you are a sole proprietor, a C-Corporation, S-Corporation, LLC, or Partnership, you are liable.
Business owners, officers, and all responsible parties are personally liable for sales tax remittance, whether you charge your customer for it or not.
Even if you don’t collect the tax and should have collected it—you are personally responsible for remittance of this tax. Incorporating or setting up an LLC will not protect you if you fail to pay.
Did you know that if you don’t file sales tax reports, the statute of limitations never begins? If you think your sales may be subject to sales tax, you should start filing returns to limit your exposure to three years.
The Basics You Need to Know
A sales tax is a tax, usually paid by the consumer at the point of purchase. It should be itemized separately from the base price for certain goods and services. It is collected by the business for the state or local government. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale.
Generally, sales tax is collected daily, but must be paid on a monthly, quarterly, or annual basis, depending upon various state and local laws—including factors such as the sales volume of your business. Some states now mandate electronic filing and remittance of sales tax. Failure to file a sales tax report in a timely manner, even if no money is due, can result in penalties. Late payment of sales tax will result in penalty and interest assessments.
A portion of the sale may be exempt from the calculation of tax, because sales tax laws usually contain a list of exemptions. Laws governing the tax may require it to be included in the price (tax inclusive) or added to the price at the point of sale.
Sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services. In the United States, every state with a sales tax law has a use tax component in that law applying to purchases from out-of-state mail order, catalog and e-commerce vendors, a category also known as “remote sales.” As e-commerce sales have grown, noncompliance with use tax has had a growing impact on state revenues.
Tips to Avoid Sales Tax Problems
Businesses can reduce the impact of sales tax for themselves and their customers by planning for the tax consequences of all activities. To avoid sales tax problems, consider the following:
When designing an invoice, consider separating components to reduce the taxable portion of a sale transaction. For example, in some states, a delivery charge is exempt from the tax when stated separately from handling and other taxable charges. For businesses with locations in multiple states, when selecting the location for new facilities, they should consider jurisdictions with no sales tax, or broad exemptions for certain types of business operations. This would be an obvious consideration in selecting a site for a new manufacturing plant, warehouse, or administrative office.
For a business operating in several jurisdictions, choosing the best location in which to take delivery can reduce or eliminate the sales tax liability. This is particularly important for an item to be sold or used in another jurisdiction with either a lower tax rate or an exemption for that item. Businesses should consider whether a temporary storage exemption applies to merchandise initially accepted in a jurisdiction with a higher tax rate. Review company purchases to determine whether tax was paid in error for equipment and supplies qualifying for exemptions, especially in jurisdictions with broad manufacturing exemptions. Some jurisdictions allow refunds only up to three years after the tax was paid.
Periodically review record-keeping procedures related to sales and use tax. Proper supporting detail—including exemption and resale certificates, invoices, and other records—must be available to defend the company in the event of a sales and use tax audit. Without proper documentation, a seller can be held liable for tax not collected from a buyer.
Steep penalties are imposed on businesses for not filing and non-payment of sales tax.
AccountantBridge can help you find an accountant that understands your type of business and your obligations when it comes to sales tax in your state. Click here to find an accountant now.