What Are The Consequences of Not Paying?
As a business owner it is important to know if you should be paying sales tax and the consequences if you are not. These taxes can vary depending on the state. Overall a they are paid by the buyer for taxable goods and services. Most goods are taxable with few exceptions such as food, prescription and non-prescription drugs. When adding a sales tax to an item it is reflected separately on the receipt.
If the buyer plans to resell the item purchased, they must have a resale certificate that needs to be copied and kept. This is so they are not charged a sales tax since they will be selling the item instead of buying. The state may require monthly or quarterly payments of sales tax. If sales taxes aren’t being paid, then there will be a fine of approximately $1,500 for a misdemeanor. There is also risk of having permits suspended or revoked and being denied for renewal of permits.
Different Types of Sales Tax
In general, sales tax is used for retail sales, but there are 3 different types:
Seller or vendor privilege taxes
Retailers have to pay this tax for being able to sell within the state. It can be paid out of the business income (out of pocket) or add it to the sale price and charge the purchaser.
Consumer excise taxes
This is directed towards the purchasers for buying goods in the state. The tax is shown separately on the sales receipt to show the consumer the tax they are paying that is collected on the states behalf.
Retail transaction taxes
This is imposed on the retail sale transaction itself. It is similar to the consumer excise tax because sellers are responsible for collecting and paying the tax, and purchasers are responsible for paying the tax that sellers must collect for each sale.
Sales tax is highly dependent on the state in which your business is in. There are two types of states origin – based state and destination state.
Origin Based State
You charge sales tax based on the state you are located in and not based on the state in which the item will be sent to. For example, say your business is in Illinois and the item is being sent to Florida. You will collect the sales tax for your state, Illinois.
Origin Destination Based State
You do not collect tax if the item will to a different state because the buyer of the item will do it. For example, say business X is in Florida and the item purchased is being sent to Connecticut. You will not add a sales tax on the receipt since the purchaser will pay a Connecticut tax.
If you have any questions or concerns about your business’ accounting and bookkeeping, give My CPA, PA a call at 954-239-8365. We will more than happy to speak with you and set up an appointment to make sure you are in compliance with everything tax related.
*This is not direct legal or tax advice – please consult with you accountant regarding your specific situation.