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Simple and accurate way to charge sales tax?

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Forum topic by woodworkerforchrist posted 05-12-2015 12:32 PM 994 views 0 times favorited 20 replies Add to Favorites Watch
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woodworkerforchrist

154 posts in 1323 days


05-12-2015 12:32 PM

Hello Ya’ll!! Hope everyone is enjoying this wonderful spring and getting some time in your wood shops, workin or playin. I have question on charging sales tax for wood items I sell. Finally starting to make a little money and know I need to charge and pay sales tax and want to do it accuratly but simply but havnt got any clear answers on the best way to do it. I know here in Mn its 6.875% and need to pay it once a year. But whats the best way to charge the customer. It seems easiest to just have even prices and have the tax included as I’m making plenty on each item anyway and so dont need to add more. Example: I sell something for $100 and just figure the 6.875% is in there instead of adding it to the end. Or is it better to add it to the end of every items price? If I just have it included and just pay a lump sum (% of what I make yearly) then do I need to still keep track of what I charged for each item? Its confusing. All advice will be appreciated! thanks!

-- Marty from MinneSNOWta


20 replies so far

View johnstoneb's profile

johnstoneb

2146 posts in 1638 days


#1 posted 05-12-2015 12:40 PM

You need to figure sales tax at time of sale and on the sale price of the item. The way you are trying to figure it you will end up actually paying more tax to the state than what you actually owe them and you will have a real book keeping nightmare.

You need to get ahold of you state tax commission and find out what need to be done when collecting tax. I am sure you will need a state tax number at the very least.

-- Bruce, Boise, ID

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bonesbr549

1176 posts in 2532 days


#2 posted 05-12-2015 12:45 PM

Back years ago when I did the craftshow deal. I felt I’d better be on the level, so I went through what you are facing.

First, you need to know your state. Each is different. I know where I’m at now, there is a state sales tax and local tax added together.

When I did it I was living in VA, and they were simple 4.5%. I would figure final pricing by:

Adding (materials cost) + (overhead rate) + (Profit margin desired) + (state tax required)= Price

I would round up the price to make it easy to account for in a spreadsheet. If you will be above board remember to account for income tax in your price.

For example if all the first items added together was 100 bucks, then would multiply 100 * 1.045 and that rounded would be 105$.

I used a simple receipt book to keep records of sales, and my spreadsheet made it easy for reporting and tax purposes. Remember to keep those records! Back in the day early computers I scanned everything and kept it on floppys. Now cheap off the shelf software would help you do all that.

Depending on states, reporting/filing requirements vary. I had to file Quarterly, even if I had no sales. Also remember you probably will require a taxid from the state as well.

It’s all a royal pain-in-arse for sure.

Good luck.

-- Sooner or later Liberals run out of other people's money.

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bondogaposis

4034 posts in 1816 days


#3 posted 05-12-2015 01:01 PM

Take your $100 item and divide it by 1.06875 = $93.57 is what you get and the state gets $6.43.

-- Bondo Gaposis

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Rob

704 posts in 2536 days


#4 posted 05-12-2015 01:18 PM

The most correct way to charge sales tax without an accounting tool is to add it during each sale as Bruce mentioned, but I don’t agree that you’ll necessarily end up paying more than you owe if you do it that way. The rounding errors may actually work in your favor. Unless you have a large number of sales, you’ll probably be overpaying or underpaying by a few cents, or at worst a couple dollars.

How often you must report and pay the sales tax may depend on your annual revenue from this business (at least that’s how it works in my state). If you don’t already have one, you’ll need to apply for a sales tax permit at your county’s administrative office. In my county, it’s the same place I pay for my car registration.

The easiest way to track everything is to set up a smartphone/tablet app like Square and track your sales there. Then when you need to pay sales tax, you log into a website, select the date range, and it spits out a report with gross sales, fees, sales tax, and net sales (after taking out fees and tax). Square gives you a free credit card reader that plugs into your smartphone’s headphone jack, but you don’t have to accept credit cards in order to use the app. If you do take credit cards payments, they charge a flat 2.75% fee on each credit card sale. There are other similar systems available now with slightly different fee structures. Be sure to factor fees and sales tax into your prices, if you have enough sales volume for it to make a significant difference.

I haven’t been a craft vendor at a festival or show, but it’s fairly common for food vendors and other large-volume vendors to work the sales tax into exact dollar prices to simplify cash transactions, and figure the tax afterward. Note that you can work the sales tax into the price as you suggested, but either way you should post a sign that says whether or not tax is included in your prices. If you prefer to calculate sales tax after the fact, you can adjust your prices to include the sales tax. Technically you should do this for each individual sale, and for you, this would be as follows:

(gross sale) – (gross sale / 1.06875)

That gives the amount of sales tax owed.

-- Ask an expert or be the expert - http://woodworking.stackexchange.com

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Earlextech

1159 posts in 2156 days


#5 posted 05-12-2015 01:44 PM

Not only is each state different but each tax expert you talk to will tell you something different. The joy of business ownership!

-- Sam Hamory - The project is never finished until its "Finished"!

View mahdee's profile

mahdee

3553 posts in 1233 days


#6 posted 05-12-2015 01:58 PM

I also add the tax to the cost. One thing we have to do in my state is to keep track of city taxes as well. I get a notification every quarter as to which city has changed their tax code. It can be a huge hassle to figure them all out and that is exactly what is intended to do; to keep little people out of the way of the big boys and girls. I pay state taxes based on sales in the state and county and city taxes based on where in the state item was sold. You can call or better yet make an appointment with your (we call ours “department of finance and administration”) and pick their brains as your best course of action. Here, they are very friendly and helpful. I would also open a separate bank account for your business only. If you can, put a few grand in the account and use that to buy your business related material. If your account start to vanish, you know you are not making money the way you are doing it. If it flourish, you are doing it right. Keep it all separate and legit.

-- earthartandfoods.com

View brtech's profile (online now)

brtech

905 posts in 2388 days


#7 posted 05-12-2015 01:59 PM

I would strongly consider using Square. It will handle tax calculations, issue receipts, and allow you to take credit cards. It will do everything for a cash sale that it does for a credit card sale.

You need a smartphone or tablet with cell connections if you are selling at a craft fair.

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woodworkerforchrist

154 posts in 1323 days


#8 posted 05-12-2015 02:10 PM

Thanks for all the info!! I downloaded Square and will try that. It will be a challenge also to try to figure and document tax on stuff I already sold this year. Thanks again everyone!!

-- Marty from MinneSNOWta

View SirIrb's profile

SirIrb

1239 posts in 696 days


#9 posted 05-12-2015 02:43 PM

Never tell the thief where the jewels are hidden.

Or, another way to see it:

Screw them. Get paid in cash. Offer a Cash discount to your clients.

Pray a lot.

-- Don't blame me, I voted for no one.

View smitdog's profile

smitdog

229 posts in 1571 days


#10 posted 05-12-2015 02:55 PM

Bondo is on the money, and all the gov needs is totals for the quarter/semi annual or whatever you need to do based on your volume (at least here in Ohio). So you can just total up everything you sell through those dates and use Bondo’s formula to figure out your gross sales and tax owed. You can do it that way as long as you sell from one county, my wife has been self empoyed for years and we’ve always done it that way with no issues. Not sure what the laws are if you move around a lot and sell at shows, you may have to change the tax rate depending on where you are and that’s more of a pain to keep track of. Gross sales divided by (1+tax rate) = net sales then gross sales minus net sales = tax due.

-- Jarrett - Mount Vernon, Ohio

View bonesbr549's profile

bonesbr549

1176 posts in 2532 days


#11 posted 05-12-2015 02:55 PM


I would strongly consider using Square. It will handle tax calculations, issue receipts, and allow you to take credit cards. It will do everything for a cash sale that it does for a credit card sale.

You need a smartphone or tablet with cell connections if you are selling at a craft fair.

- brtech

Don’t forget if you take a CC to add the cost of the transaction from the bank in! Everybody gets a cut!!!!!

Square is 2.7% / swipe or 3.5% + 15c for manual entry. Charge disputes you are covered for 250/month.

Isn’t it all cool!

-- Sooner or later Liberals run out of other people's money.

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WoodNSawdust

1417 posts in 642 days


#12 posted 05-12-2015 03:39 PM

Others have given you good advice. I have tried the various methods that been mentioned.

I will offer entirely different suggestion. If you have a laptop or windows tablet get QuickBooks. The simple edition will suffice. It has all of the sales tax collection and reporting built-in. Additionally, it can produce Estimates, Invoices and track your sales. So you can find out which product(s) sell best and which product(s) have the best profit. Some editions also have the credit card processing software built in. You can usually find a couple of QuickBooks classes at the local community college continuing education department.

-- "I love it when a plan comes together" John "Hannibal" Smith

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brtech

905 posts in 2388 days


#13 posted 05-12-2015 04:08 PM

Quickbooks isn’t practical to use at a craft fair. If all you do is commission work, then it’s a great solution. If you have to complete an order while the customer waits, it’s not great. It can be done (I’ve done it), but it’s not anywhere near as good as Square. You can export Square transactions to Quickbooks, but there is a one time charge for the connector. Annoying.

Also, all if Intuit’s credit card processing is more expensive than Square. You can find alternatives to Square that are decently priced, but I think Square wins on functionality.

View Puzzleman's profile

Puzzleman

411 posts in 2409 days


#14 posted 05-12-2015 04:23 PM

I treat sales tax as does any other store. I add it onto the price just like Walmart does.

To make figuring prices easy, I price everything in $5 increments. (25,45,50, etc.)
Then I have a chart made up that shows the total including sales tax for for every $5.00 up to $250.00
Simple spread sheet. Also have it set up so that when I am in different tax jurisdictions, I just change the tax amount and it figures it out.

Then when I calculate sales for each show, I don’t include the sales tax. That is separate entry.
Concerning reporting of sales tax, for each show I do in a different area, they have their own form for each of the shows.

-- Jim Beachler, Chief Puzzler, http://www.hollowwoodworks.com

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woodworkerforchrist

154 posts in 1323 days


#15 posted 05-12-2015 04:50 PM

Wow! Ya’ll are awesome as usual!! So much great advice and info. I really dont do many craftshows, selling alot from word of mouth, and actually alot just from advertising on facebook, mostly in my area. I dont have a storefront of my own yet so most people just come to my home/shop and pick them up, I deliver and mail some also. I still just doing small scrollsawn stuff, boxes, outdoor chairs, small custom orders etc. thanks again!!

-- Marty from MinneSNOWta

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