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View Full Version : charging tax vs. collecting tax vs. paying tax



Dan Furman
07-12-2009, 02:38 PM
Something MagicMan brought up (the flea market stuff) that I'm wondering about (I'm putting this in this partcular forum because it's more of a planning thing in my mind.)

Assume state sales tax needs to be collected/paid. Does anyone know the rule in regards to actually collecting/charging the tax to the customer? Do you *have* to say to the customer "the price is XXX plus tax" or can you just say "it's $20" and in your mind that includes the tax you'll pay?

I know when my father sold swords and stuff at a rennaissance fair years ago, we never "charged" tax - it was just too cumbersom to deal with in a setting like that. We instead just charged $20 (instead of, say, $18.75 plus tax). For purposes of us to customer, the tax was included.

Of course, we paid the state their proper cut [based on a retail price of X + X(Tax rate) = $20], but charging it to the customer was totally transparent.

So I'm wondering - is that an acceptable practice? Because I would think at something like a flea market / etc, one doesn't want to deal w/ constant loose change - nice even dollar amounts are far easier in that type of setting.

Spider
07-12-2009, 04:30 PM
I always figured that the price - $x + tax - was simply to make the price seem smaller -- $18.75 + tax sounds less that $20.

I'm pretty sure you do not have to state that the customer is paying tax. Many products do not carry tax. In my wife's pet grooming business, she must charge tax on grooming but not on boarding. Most customers couldn't care less which is and which isn't.

The onus is on the vendor to pay the tax to the taxing authority, but there is no requirement for the vendor to charge the tax. If the vendor doesn't charge the customer, he will have to pay it himself. It is a SALES tax, notice, not a PURCHASE tax. (Not that the word would make any difference, I suppose.)

Dan Furman
07-12-2009, 05:49 PM
I always figured that the price - $x + tax - was simply to make the price seem smaller -- $18.75 + tax sounds less that $20.

I'm pretty sure you do not have to state that the customer is paying tax. Many products do not carry tax. In my wife's pet grooming business, she must charge tax on grooming but not on boarding. Most customers couldn't care less which is and which isn't.

The onus is on the vendor to pay the tax to the taxing authority, but there is no requirement for the vendor to charge the tax. If the vendor doesn't charge the customer, he will have to pay it himself. It is a SALES tax, notice, not a PURCHASE tax. (Not that the word would make any difference, I suppose.)

That's what I always just assumed - that the govt really doesn't care if you actually charge it, as long as *you* pay it.

But we often get questions here like "do I have to charge sales tax?", when perhaps it should really be "do I have to *pay* sales tax?"

Business Attorney
07-13-2009, 10:04 AM
The answer varies from state to state. Many, if not most, states do require that the sales tax be separately stated. Some states will allow a general exception if the retailer clearly states that the price includes sales taxes. There are also often specific exceptions, like sales through vending machines, where collecting the sales tax separately would be implausible.

Some states have other variations of the rule. For example, in Washington state, the law reads, in part:


Selling prices may be advertised as including the tax or that the seller is paying the tax and, in such cases, the advertised price must not be considered to be the taxable selling price under certain prescribed conditions explained in this section. Even when prices are advertised as including the sales tax, the actual sales invoices, receipts, contracts, or billing documents must list the retail sales tax as a separate charge. Failure to comply with this requirement may result in the retail sales tax due and payable to the state being computed on the gross amount charged even if it is claimed to already include all taxes due.

Generally, the price for failing to state the sales tax separately is that you must report the entire amount collected when you report your sales. In your example, if the sales tax on $18.75 was $1.25 and you just charge $20, you will need to report $20 as the amount of the sale. That would mean that you would have to remit $1.33 in sales tax to the state (6.6% of $20), even though you only collected $1.25 (6.6% of $18.75).

Spider
07-13-2009, 11:24 AM
Thanks, David. Very intersting.

Dan Furman
07-13-2009, 01:23 PM
Thanks David - that's excellent information.

Evan
07-13-2009, 09:52 PM
What David said was excellent. The bottom line though is the state doesn't necessarily care if it's included or charged separately, as long as it is paid. If a transaction was taxable and you neglected to collect it from the customer, then the cost is on your dime.

Sales tax audits are not uncommon.

Evan
07-13-2009, 09:58 PM
Generally, the price for failing to state the sales tax separately is that you must report the entire amount collected when you report your sales.

Assuming that law above applies. Otherwise I'm sure the seller could calculate the actual rate and report that. Of course, knowing the laws of the specific state are probably the best weapon to knowing what is applicable and what isn't.

While the above difference is minor and probably would not matter -- it is the aggregate affect on multiple transactions that creates the issues.

magicman
07-24-2009, 01:23 AM
I am thinking that sales tax was meant to be paid by the seller, like income tax is paid by the individual, and just got passed on to the buyer so it does not cut into the profit from the sale.

Can I state that tax is included? What I mean is say the item is $1, and I only ever want the person buying it to pay me one dollar (not like a dollar store where you pay $1.08 or so). I used Sales Tax Calculator And De-Calculator (http://www.csgnetwork.com/salestaxcalc.html) to figure this out.

To only get $1 from the person, the item would need to be 93 cents without tax.

For each fair I do, I am counting the total made for the fair (instead of individual sales) as one sale. So say I did $100 in sales for all fairs at one jurisdiction (8% tax, all items including sales tax) I would figure out the sales without tax to be $92.59, and enter that in the box for sales, and doing the math on the form to come out with $7.41 owed in that jurisdiction.

Is this allowed? I would think it would be if I say that the tax is included. It would be on the same sign that says "You are buying a magic secret, once item is sold the secret is told, you cannot return a secret." ;)

Evan
07-24-2009, 08:55 AM
You're asking a legal/tax question unique to your state. I'm not an attorney (or a NYS accountant), so I do not know the answer.

My general gut feeling is you could include sales tax as long as you note that it INCLUDES sales tax. This way people know it is already included.