How to Do Small Business Accounting Sales Taxes
Know when you need to charge sales tax., Determine if the buyer is out of state., Learn the sales tax rules and rates.
Step-by-Step Guide
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Step 1: Know when you need to charge sales tax.
There are several instances where you would not charge sales tax.
They include when someone buys a product with the intent to resell it (wholesale purchases), raw materials, and sales made to non-profit organizations.For example, if you are a florist you would buy the flowers from a wholesaler and then resell them in your shop.
You do not pay sales tax but your customer does.
For raw materials, if you manufacture and sell goods that will be used as parts to produce other goods, these items are usually considered to be exempt from sales tax.Non-profit organizations are also exempt from having to pay sales tax.
They need to present a sales tax exemption certificate that they obtain from the state department of finance when making a purchase. -
Step 2: Determine if the buyer is out of state.
In days past, operating an online or mail order business meant you did not have to charge sales tax for out-of-state customers.
Now states are changing business taxation laws and being designated as origin-based or destination-based for sales tax.
The difference is critical to understanding what sales tax you will need to charge an out-of-state customer.Origin-based sales tax states mandate that businesses charge local sales tax to all customers, regardless of the customer's state of residence.
Destination-based states do the opposite. , There may be special circumstances in which the sales tax rate may vary, and when you do not need to collect it.
For example, some states only charge sales tax on clothing if it is priced over $500.
Many states do not charge sales tax on food, but do charge tax on other items that can be purchased in a grocery store such as paper goods and toiletries.
Contact your state department of Finance to find out the sales tax rate and when to charge it.
Some states require you to submit forms and report taxes online.
They may not accept paper forms.
Check with your state to learn the proper way of reporting your sales taxes. -
Step 3: Learn the sales tax rules and rates.
Detailed Guide
There are several instances where you would not charge sales tax.
They include when someone buys a product with the intent to resell it (wholesale purchases), raw materials, and sales made to non-profit organizations.For example, if you are a florist you would buy the flowers from a wholesaler and then resell them in your shop.
You do not pay sales tax but your customer does.
For raw materials, if you manufacture and sell goods that will be used as parts to produce other goods, these items are usually considered to be exempt from sales tax.Non-profit organizations are also exempt from having to pay sales tax.
They need to present a sales tax exemption certificate that they obtain from the state department of finance when making a purchase.
In days past, operating an online or mail order business meant you did not have to charge sales tax for out-of-state customers.
Now states are changing business taxation laws and being designated as origin-based or destination-based for sales tax.
The difference is critical to understanding what sales tax you will need to charge an out-of-state customer.Origin-based sales tax states mandate that businesses charge local sales tax to all customers, regardless of the customer's state of residence.
Destination-based states do the opposite. , There may be special circumstances in which the sales tax rate may vary, and when you do not need to collect it.
For example, some states only charge sales tax on clothing if it is priced over $500.
Many states do not charge sales tax on food, but do charge tax on other items that can be purchased in a grocery store such as paper goods and toiletries.
Contact your state department of Finance to find out the sales tax rate and when to charge it.
Some states require you to submit forms and report taxes online.
They may not accept paper forms.
Check with your state to learn the proper way of reporting your sales taxes.
About the Author
Marilyn Clark
Marilyn Clark is an experienced writer with over 8 years of expertise in non profit. Passionate about sharing practical knowledge, Marilyn creates easy-to-follow guides that help readers achieve their goals.
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