Why Is Sales Tax So Difficult?

[KristineS]

Like many businesses we collect sales tax from our customers as required by law. We also state clearly on our policies page and on our blog how to avoid being charged sales tax and even make the relevant forms available for download.

We make it as simple as possible and yet we still have people who don't grasp the procedure or who won't fill out the forms and then complain that they get charged the necessary tax.

Do people just not understand how this works? Does anyone else have this issue when it comes to sales tax?

[vangogh]

I can't speak for everyone, but not every state charges sales tax (I think sales tax is state only isn't it?) so they may not be as used to dealing with it. Also since we're talking about things on a state level the rules change depending on where you live. We're living in an age of the Internet where people expect less and less to be charged sales tax for anything.

But what's might be the biggest thing is no one wants to pay the sales tax in the first place. They could just be avoiding and complaining in the hopes of saving some money.

[dynocat]

I feel for you Kristine.

We're one of only 5 or 6 states with no sales tax. I don't envy any business that has to collect not only state but county and city sales taxes. It must be a nightmare. Some even vary by zip code.

[KristineS]

It is kind of annoying dynocat, but the more annoying part is the people who won't follow the simple steps that would allow them to legally not pay the tax. We argue with people all the time about it. In the time they spend arguing with us they could just fill out the blasted forms and then there wouldn't be any more arguing.

[bizjunkie]

Sales tax is only a state thing right now but there is talk about a VAT. While a VAT would be just added into the price - making the business account 100% for it - it will still be a cumulative sales tax.

While I agree that people don't like paying sales tax - I think KristineS's problem might have to do more with the laziness of people. They are use to just having someone else do it all for them and they expect (demand) that this continues. You are asking them to fill out forms - thus, they have to take the time to do it and think about it - when all they want to do is pay and move on.

While I don't think it should be your responsibility to do this for them, it seems to be costing you time and effort - thus, can you think about ways to make it even easier for them to get through the process?

[vangogh]

You could be right about the laziness. It might also be a little more than just laziness. Maybe some of it is the confusion around sales tax with all the different rules. Makes it easier to be lazy when you're not quite sure how to go about doing something.

[KristineS]

I think some of it is confusion, some of it is just not wanting to deal with yet more paperwork, and some of it is sheer stubbornness.

I have tried to think of ways to make it easier, but we provide links to the forms and the information as to why we charge sales tax. About the only way to make it easier would be to complete the forms for them, and I'd guess that's illegal.

[vangogh]

Are there parts of the form you could complete that wouldn't be illegal? How about showing an example form on the site with explanations for what might be confusing fields?

[Evan]

Sales tax causes a lot of issues for clients, who often miscalculate it, or don't know what exactly is taxable and non-taxable. The laws vary considerably from state-to-state. But I think restaurants or convenience stores have it the worst.

The complexity also varies by items. For example, candy is generally taxable in Rhode Island, except if it includes flour. So you can purchase a Milky Way (no flour), or Twizzlers, and it is non-taxable. Buy a Snicker's instead -- and now you're taxable.

If you go to the deli, and they have some hot lasagna they just made -- it's subject to sales tax. You go the next day and the same lasagna is there, except it's cold -- it's non-taxable. You return on day three for another slice of the lasagna, except it is already heated, it's now taxable again.

For breakfast, if you go to a bagel shop and get an uncut bagel and it's not toasted -- assuming there aren't any utensils available, it's not taxable in RI. But if they give you utensils, or if they're readily available, it's taxable in RI.

Very confusing stuff, never mind reporting it. Sales tax audits are also messy, mainly because it is a "Sales and Use Tax". Now if I purchased items in Massachusetts for 6%, and didn't pay use tax for 1% (to make 7% in RI), OR if I bought stuff online and paid NO tax, they will wonder why I paid no "Use Tax". They will add all of this stuff up, and subject you to interest and penalties.

[KristineS]

Good Lord, Evan, I didn't know it was that confusing! That is some weird stuff. Who really sat down and figured out that the temperature of the lasagna would make a difference in whether or not something was taxed.

I know it is confusing for our customers and I do understand their frustration. I'm just out of ideas as to what to do other than what we're already doing. I suppose we could go into more detail about why we charge sales tax in the states where we charge it, but most people don't read the explanation we have now, so I doubt they'd read additional information.

[Spider]

Couldn't you just include the tax in the price and do your own calculations later for sending into the tax office? Your customers wouldn't be any the wiser, the taxing authority would get their money and you would have fewer headaches.

[dynocat]

Couldn't you just include the tax in the price and do your own calculations later for sending into the tax office? Your customers wouldn't be any the wiser, the taxing authority would get their money and you would have fewer headaches.

Good idea, Spider. I've seen some vendors do that often at art shows in states where sales tax needs to be collected. You could include a line with each item that states, " to make your purchasing easier, sales tax is included in our price," or something similar.

[KristineS]

While just adding the sales tax to the price is a good solution for some businesses, it wouldn't work for us. How would we differentiate between the people who have filled in the proper forms and should not be charged sales tax vs. those who should. We have to have two different pricing structures, and with all the products we have that would be a nightmare.

I guess I'll just have to do more education about why sales tax is charged and how to be exempt from paying it.

[Spider]

I imagine your computer files indicate whether a particular customer is tax-exempt. So, when you open the customer's file to record a purchase, the tax-exempt status will be seen. To those customers who are tax-exempt, simply say, "Oh! I see you are tax exempt. I will deduct $x from the price because it includes tax. Your tax-exempt price is now $y."

(For customers who are not tax-exempt, say nothing.)

This, or some other simple adjustment to your sales process could be devised to solve any such problem, I would think. It's only a processing matter, after all, not recalculating the trajectory of a space shuttle flight.

Or is there something I am not understanding?

[KristineS]

That would work if the business was small and we only had a few products. We charge tax in six different states, each of which has their own rules, sometimes down to the county level, and we have a couple thousand SKUs at last count. To try and do that all manually would be a nightmare, plus slow the order processing down to a crawl. It's just not practical.

The easiest way to do it is to charge tax until we receive the paperwork that allows us not to charge tax. All that requires is a change in the customer's status once we receive the paperwork and everyone is happy. You'd also think this would be pretty standard for most business owners, since it's law that you must show the required tax exemption paperwork for your state to avoid the taxes. It's not like we're asking for anything out of the ordinary.

[Evan]

Couldn't you just include the tax in the price and do your own calculations later for sending into the tax office? Your customers wouldn't be any the wiser, the taxing authority would get their money and you would have fewer headaches.

Many people mess this up often enough.. For example:

RI Sales Tax = 7%

If I buy a $10 item (sales tax included), what is the price of the item? $9.35 -- or a liability of 65 cents.

Often times, people will take $10, multiply by 7%, and figure that the liability is 70 cents, effectively overpaying their liability. They should be dividing by 1.07.

Now, if i include sales tax, and I present to you a tax-exempt certificate, I should be able to purchase the items for $9.35 each. If you're going to sell them still for $10, the state may say that was constructively a taxable sale, and collect the proceeds anyways.

You make it more of a nightmare to go backwards -- especially if your product mix includes taxable and non-taxable items. It is even worse if you have multiple taxes. In RI, we also have an additional 1% sales tax on some items.

[sequoiapayroll]

Like many businesses we collect sales tax from our customers as required by law. We also state clearly on our policies page and on our blog how to avoid being charged sales tax and even make the relevant forms available for download.

We make it as simple as possible and yet we still have people who don't grasp the procedure or who won't fill out the forms and then complain that they get charged the necessary tax.

Do people just not understand how this works? Does anyone else have this issue when it comes to sales tax?

Do people in general know about the forms? I visited a few of the links in your sig, but I could not readily find the sales tax info. If you made the forms more visible, do you think it would make it easier on yourself and you customer? Just a thought.

As Evan mentioned, there are different complexities based on the state in which you live. For example here in AR, you have to charge sales tax if you clean houses, but not if you build houses. You have to charge sales tax on the install of a garbage disposal, but not on the install of a sink. It can get tricky. FYI, yout sales tax looks a little more cut and dry than other states:
Taxes - Sales Tax (http://www.michigan.gov/taxes/0,1607,7-238-43529-155505--,00.html)

[KristineS]

Do people in general know about the forms? I visited a few of the links in your sig, but I could not readily find the sales tax info. If you made the forms more visible, do you think it would make it easier on yourself and you customer? Just a thought.

Taxes - Sales Tax (http://www.michigan.gov/taxes/0,1607,7-238-43529-155505--,00.html)

The links in my sig are for some personal blogs I write, not for the company for which I work. Sorry for the confusion about that. As far as that goes, the sales tax info is spelled out in our policies section and I've also written it out again, with links to the relevant forms on our blog. We've also even told people about the forms and e-mailed them to them and we still don't get them back. I'm not sure why people resist so strongly, but they do.