Small Business Tips: The Basics Of Sales Taxes

Most small businesses must deal with is sales tax, here is a brief overview of sales tax rules.

One of the many regulatory items to check into when starting up a small business is sales taxes. This article will provide you with a brief overview of sales tax issues, but you will need to check with your state's department of revenue to obtain information and rules particular to your state. Most state revenue departments are quite willing to help out a new business owner - after all, you're providing them with increased revenue!

Sales Tax Permit

Most states require businesses to have a sales tax permit in order to collect sales taxes. Check with your state for the proper form. Many states allow you to begin selling once you've applied for the permit, but there may be some which require you to wait for approval first. Selling (and collecting sales tax) without a permit is a major violation of the law in most states, so make sure you file the proper forms to avoid entanglements with the law.

Charging Sales Tax

It can be somewhat confusing to determine which products and services are taxable and which are not, and each state is slightly different. Obtain and memorize the rules for your state and seek clarification from the department of revenue if you are uncertain.

Once you've determined whether you are selling a product or service that needs to be taxes, you should find out how much tax to charge. Many locations have a local (city or county) tax in addition to a state tax. Some locations have different rules for the local taxes, as well, such as a rule that states that the local tax is not to be charged on high-ticket items like cars.

Most states require you to charge sales tax on all sales made within the state. However, you usually will not be required to charge sales tax for sales made to customers living outside your state. Check with your state's department of revenue to make certain.

Purchasing Items for Resale

When you purchase items for resale, most states do not require you to pay sales tax, since you will collect the tax from your own customers when you resell the item. Retailers and wholesalers will ask for proof that you are eligible for the sales tax exemption before allowing you to make purchases tax-free. Your sales tax permit should suffice. Additionally, many retailers and wholesalers will have paperwork for you to fill out and some will issue you a sales tax exemption card to show each time you make an exempt purchase.

You will need to keep careful records, though. If you purchase an item with the intent to resell and do not pay the sales tax when you purchase it, then you later decide to use the item in your business rather than reselling it, you will be liable for the sales tax on that item. For example, Joe's Garage buys a case of motor oil intended for resale to customers and does not pay any sales tax on the purchase. Later, Joe's towing truck is a quart low, so Joe takes a quart of oil off the shelf and uses it in his truck. Joe will need to make note of this when he makes his sales tax payment and be sure to pay the sales tax that is due on that quart of oil.

This should be enough knowledge to get you started with sales tax. Please be sure to work with your state's department of revenue, however, to obtain a clear understanding of the rules in your state.

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