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Tax Tip: Streamlining Sales Tax Collections

Posted: May 21, 2012, 7:10 pm. EDT


By Mark E. Battersby
These are confusing days in the fast-changing and often muddled world of sales taxes. Long gone are the days when a pet shop or business could define its role as simply a collector of taxes on the goods it sold to local customers.

Today, businesses face pressure to collect sales taxes by increasingly revenue-strapped taxing authorities, all-the-while battling competition from Internet merchants that, in many cases, are not required to collect sales taxes.

And don’t forget, when those same pet businesses attempt to avoid the bite of sales tax with out-of-state or Internet purchases of their own, they are confronted with the often-ignored, but increasingly enforced, “use” portion of the sales and use tax conundrum.

While sales tax is not imposed on goods or services meant for resale, there are exceptions. For instance, exceptions are usually made for sales to resellers, either wholesalers or retailers that have valid state resale certificates.

sales receipts
Another exception to the general sales tax rules involves sales made to tax-exempt institutions, such as humane societies, public schools and libraries. In general, sales taxes do not have to be collected on sales to tax-exempt or other exempted organizations. Further complicating matters, in some states, sales taxes apply only to products, while in other states sales taxes apply to services as well.

Frequently overlooked by many retailers, distributors and manufacturers, as well as those in the grooming or pet services arena, is the amount of sales tax included in the operation’s reported total receipts. A pet retailer can wind up paying sales tax on the sales tax and income tax on the sales tax if adequate records are not maintained.

This can happen because “gross receipts” means the total of all monies coming into the business, including sales tax collections. Obviously, careful recordkeeping is needed in order to “blackout” the sales tax from the retailer’s gross sales.

Different taxing jurisdictions tax different products, goods and services at various rates. In one state, for example, orange juice is defined as a “fruit” and subject to sales tax. Labeled as a “beverage” in a neighboring state, that same orange juice is not taxed.

All too often, the only thing many taxing jurisdictions have in common is the pressure from their taxing authorities to generate badly needed revenues for the governments that levy them.

Overlooked and misunderstood, sales taxes rank high among the most annoying taxes a business must deal with. Even worse, sales taxes collected and paid by many retailers are increasing in both amount and complexity. Cash-strapped state and local governments are raising sales tax rates and stepping up enforcement of their collection rules.

Obviously, whether collecting those sales taxes or required to pay sales and use taxes, every retailer and manager should be familiar with the sales tax regulations in their area. Anyone caught not collecting sales taxes must pay those amounts out of pocket. 

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