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Author Topic: charging TAX  (Read 1909 times)
StampinFairy
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« on: September 21, 2011, 06:50:16 AM »

hi

I have finally elevated to the level where I believe I should be charging tax.  (I know, I should have done it all along) Let's just say, I got into a show that is strict about the sales tax id # and certificate.  So, I've registered.

I've made an announcement on my facebook page that as of Oct 1 I will charge tax.  But my question is.. how should I do it?

As of now my soaps are $7 or 3 for $20.  We have a 7% sales tax in NJ. 

I don't want to reduce my amount of profit by saying that as of now the bars are $7 with the tax included.  So now the bars would be $7.49 and I would take the tax and set it aside to give to NJ at the end of the year.  This is the most fair for me.  Is it the most fair for my customers?  Do I just not worry about it because there is nothing I can do about it?  It has to be collected and it's not going into my pocket, and I'm not taking a loss because of it.

Should I feel bad a little bit?

thanks for your opinions on this
Denise
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brnicholas
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« Reply #1 on: September 22, 2011, 05:05:42 AM »

Hi Denise,

Our sales tax in Mississippi is also 7%. On our online store we have the system add the 7% tax to Mississippi sales and we record it as a liability in our accounting system. This is not an expense for us, we are just collecting it for the state. When we sell at functions we just up the price to an even amount to include the sales tax. Our bars are $4.00 so we charge $4.25 and pay the extra 3 cents to the state ourselves. It is worth it because the customer doesn't have to worry about pennies.

This is going to get a little more complicated for me because I'm going to move the soap operation to Savannah, GA, and we will be charging tax there. In Georgia the tax can be different in each county. Most are 7% but some are 6% and Atlanta is 8%. I don't know how I'm going to work that out because our online store only allows one tax for an entire state. It isn't much difference so I will probably go with charging 6% and just eat the extra pennies.

I guess in your case I would just make the price $7.50 each and maybe $21.00 for three. Just my opinion but be sure to tell people the price hasn't gone up but it now includes the sales tax.

Br Nicholas
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Opulence
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« Reply #2 on: September 22, 2011, 04:25:37 PM »

The sales tax is based on the amount of the sale.  If the sale is $10 the taxes are 7% on the $10 or $.70 making the total cost $10.70.

For tax reporting purposes, the State of NJ ask for the total cost of products sold then figures the taxes on the amount of the sales.  If you put $10 for the total cost (including taxes), you would have to break down every item to figure out purchase price - the taxes paid . . . trust me, you don't want to go that route!!! I know this because I, too, live in NJ and am registered and pay sales taxes. 

DENISE, BE PREPARED TO PAY YOUR TAXES QUARTERLY INSTEAD OF ANNUALLY.

The way you charge or don't charge taxes depends on how you want to run your business.

It's cleaner and easier if you separate taxes from the cost of the sale.  If you want to charge $9.35 for a bar of soap and charge $.65 taxes to make a $10 total, some times you can, but it won't always work. 

Anyway, people are used to paying taxes, and shipping and handling, for that matter . . . Whole Foods doesn't charge you less than 7% on the soap they sell, why should you???

You paying the $.02 or $.03 taxes on every $6 or $7 purchase (for those who don't carry pennies) WILL COST YOU $12 - $14 ON $600 to $700 IN SALES RECEIPTS!!!

I suggest that you go ahead and charge the FULL taxes.

If you use a credit card for collecting payment, you the merchant, are required to pay somewhere between 2% to 4% of the total sale for the credit card processing.  Some companies charge a small purchase fee of $5 . . . which I'm sure is to cover that merchant fee!

People always try to talk the small business person down from their prices but are willing to pay the big companies full price plus S/H, and taxes!!!

Apologies for venting . . . obviously this is a touchy subject for me!!!
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brnicholas
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« Reply #3 on: September 23, 2011, 05:11:19 AM »

I don't think that $14.00 on $700.00 worth of sales is unreasonable. It saves your customer from having to give small change and you don't have to bother with pennies. If it's that big a deal, just raise the price another 5 or 10 cents and let the customer pay the extra pennies.

Our accounting system allows you to figure the tax as included or not included and you can do it on the fly. I think most accounting systems allow this. Also, at least in Mississippi, when you pay your taxes online (the Mississippi State Tax Commission strongly supports this) their system will also figure the amount of tax due. The only difference is that they round and we don't but in the long run it evens out.

Which ever way you do it (tax included or not) any good accounting system will keep the tax separated. It must.

My concept of money may be a little skewed after having lived in a monastery for so long where all your needs are provided but I think we see many more happy faces when we charge a price that is easy for the customer. When we used to charge the pennies customers would always say keep the change and that caused more accounting headaches because the difference had to be converted to donations because we are a non-profit religious organization and must keep sales and donations separated also because donations are tax deductible and soap sales are not.

Well, now I'm venting and it could go on for a long time. I guess it is just about how much extra work you want to create for yourself. Pax vobiscum.

Br Nicholas
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brnicholas
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« Reply #4 on: September 23, 2011, 05:17:05 AM »

Let me just add that when we sell directly to the public we have the tax included but our online sales always have the tax added to the sale. We have good luck this way because we only charge the tax in Mississippi and Georgia.

Br Nicholas
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StampinFairy
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« Reply #5 on: September 24, 2011, 09:54:49 AM »

ok I see what you are saying.  I see how letting a few pennies slide can cause you a big problem later.  If I started making my own soap to stop wasting my money, and because I had those Ivory soap ends that were being saved up in the bathroom drawer, because I couldn't stand to throw away even the smallest of soap bar, (which I eventually rebatched into a new soap bar -thus starting home soaping) WHY would I want to waste those pennies?  That's income from somewhere. 


At this point tho, I am working out of a cash box and a calculator.  I don't have a register, and don't see the need for one for a long time to come... so either way, it will  be work for me every time.

I think I could suggest that one single bar of soap is $7.50 (tax included) thinking that if someone is buying one soap, they are more in a hurry than someone who is looking around and buying a few soaps, and one product from each other line.  and if the sale is for more than one soap then I will take the time to ring it all up and figure the tax out for that sale.  (the customer in the hurry is overpaying by one penny, consider it a convenience tax!)

I just now have to add another line in my inventory sheet that tallies the tax collected. I'm sure that won't be too much of a headache, especially as I get more used to it. 

thanks for your advice all.
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brnicholas
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« Reply #6 on: September 26, 2011, 05:00:57 AM »

I think the whole sales tax issue is getting over complicated here. Sales tax is not something that you as a vendor pay and it shouldn't be thought of that way. It is what you are collecting on behalf of your state and then turning over to them. It is an important source of revenue for them. You are only their agent.

In Mississippi (and I think most states) you report your gross sales (do not include the tax collected) and you deduct out of state gross sales and gross sales to customers who have a sales tax number. Then you multiply that figure by .07 to arrive at the amount of tax that should be paid.

I find personally that it is much easier to total the sale and add the sales tax. That way our books are clean. Remember that your state has the right to look at your records if they think there is something messy going on, not that they ever will, but you need to keep good records just in case.

When doing an event I raise the price to just about cover the tax and make it an even amount. It makes for less mistakes because I usually have other people helping me. I don't mind paying the few extra pennies myself because after an event our online sales spike (sometimes double) and we charge the full tax online.

The choice is up to you and you but the state will collect their revenue and if they find out you have been selling without collecting tax they give you harsh penalties. You just want to keep your nose clean.

I would also suggest you get a simple accounting program also. I don't think Quicken is expensive and it seems to be very popular. I believe it has things build in to help the small business owner with this type of thing and I believe it will do professional looking invoices and other documents.

These are all headaches that come with operating a business but if you want to be successful at running a business you have to convince yourself that you are a business before you can convince anyone else.

Best wishes,

Br Nicholas
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Opulence
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« Reply #7 on: September 26, 2011, 03:55:25 PM »

Hi,
I agreee with brnicholas when he said,
Quote
Sales tax is not something that you as a vendor pay and it shouldn't be thought of that way. It is what you are collecting on behalf of your state and then turning over to them. It is an important source of revenue for them. You are only their agent.
 
.  As agent, you collect taxes on your sales and pay them to the state on a quarterly bases.

I learned a valuable lesson when I was a Mary Kay Independent Beauty Consultant.  To make a long story short . . . a consultant purchases inventory wholesale @ a 50% and sells the items retail @ 100%.  Example, I buy a lipstick at $6.50 and sell it for $13.  Due to competition, customers have gotten used to not paying full price and/or not paying taxes.  We were willing to accomodate the customer because we wanted the sale.  Running our businesses this way created unfair competition, as most consultants undersold their products (reducing their income) or paid state taxes out of their pockets (also reducing their income).  The customer was happy, though . . . they got a $13 lipstick for $10 and didn't pay taxes!!!  I reduced my income by $3 and still had to pay the State of NJ their $.91 . . . do this a few times a month and see how it affects your bottom line annually!  Don't get me wrong, I hussled and made sales; I even earned at watch!  But I did not make any $$$!

There is a lot of $$$ that goes into making our products and even more to selling them.  There's the cost of raw materials, molds, business cards, packaging, vendor fees, gas, wear and tear on on cars, time & energy, time way from our families, annual State fees, etc.  I believe we should make a quality product and charge the full value and full taxes.  Sometimes we don't value ourselves and our products so we are willing to accept less or just give them away. 

One thing to think about.  We are a community; when we devalue our products, we automatically devalue all products in our community.

Once you don't require customers to pay full taxes, its difficult to get them to pay them on the next sale . . . you've already conditioned them!!!  This not only makes it difficult for you . . . it makes it difficult for everyone who sells handmade natural soaps.  All we'll hear is, "oh, the other lady didn't charge me full taxes" . . . this challenges the next person to meet or beat your prices in order to get the sale.

You don't need a fancy accounting system.  All you need is a calculator and a breakdown of at least $100 (including $10s, $5s, $1s, quarters, dimes, nickels and yes, pennies.

Paying 5 or 10 cents from your revenue sometimes is no big deal . . . As a small business person, paying $200 - $300 annually out of your pocket can make a difference; after all, the price of raw material isn't decreasing!!!  You can't even write this off because it is not a loss . . . you still have to pay the State their full due!

I know I'm probably blowing his way out of proportion

Whew . . . I'm done!
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Martha
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« Reply #8 on: September 26, 2011, 04:56:10 PM »

Opulence makes a good point. The tax is just that - tax for the government.

I also like the point about the soaping community setting fair prices for quality products.  I was at a craft fair. The home soaper charged a fair price for her product $6 /bar.  Clearly these soaps were made at home, by hand , small batches.  Three stalls down was the "shady" soaper selling ? soap from Australia. No way was this person selling anything remotely kin to what was on their label. They were $3 per bar. Guaranteed the "shady" soaper drew customers and sales from the home soaper.
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tvincent
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« Reply #9 on: October 04, 2011, 09:48:10 PM »

Well, it is important to pay tax as you do not want to have the revenue people knocking on your door should they find out that you are raking in from your business without paying that tax.

But if you are just doing this as a hobby and nothing of that significant value, I would not see any reason why they would not allow you to earn just the same.
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Opulence
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« Reply #10 on: October 05, 2011, 05:53:07 AM »

Hi,

I'm not sure how selling soap as a hobby works.  You may want to contact your state to get the specifics.  I would think any sales you make should be taxed and you should be covered.  Whenever you SELL personal care items or homemade desserts, etc . . . even as a hobbist you want to protect yourself from liability. Spending $125 to $150 to set yourself up as an LLC could save you thousands should a lawsuit arise.

Hobbist who sell soap that negatively affects someone can be sued.[/b]

There is no size requirement for becoming a LLC or collecting taxes; and it shouldn't make a difference if you sell $500 or $50,000 in products.

I can't think of any downside to incorporating . . . even if you are a hobbist . . . if you are buying products, setting up tables to sell at the farmer's market, and incurring expenses, etc. . . . you want protection . . . not to mention write-offs.  The key is "sales" or "selling".  If you are selling, you are in business!!!

That's my $.02.

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StampinFairy
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« Reply #11 on: October 08, 2011, 04:44:10 AM »

so I had my show with the tax and I had made up a sigh saying that one soap was $7.50 and that 3 for $20 plus tax. apparently, it was confusing.  And when people bought one soap, I still gave them that penny in change. 

So I have to change my signs back to $7 or 3 for $20 plus tax

It was helpful that I made up an index card that I kept next to my cash box.  It told me the amount of the sale, the tax on that, and the change (from one dollar more) to give.  I had a friend in the store helping me, and she found that card useful too.  I know I'm slow at math, but it gets embarrassing when you have to punch simple numbers into a calculator.  I always said it was just to double check. 

And as far as the sales tax for the state, I have that money set aside and it will go into a new account, so that I keep it separate. 

Thanks for your help....

My only new worry is how to tell my friends that now I'm charging tax... especially when I'm making a one bar sale to a co-worker as we pass in the halls.... ugg

I guess if I charge tax I have to charge tax all the time....
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Opulence
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« Reply #12 on: October 08, 2011, 09:32:05 AM »

StampinFairy,

In charging taxes to family and friends, just explain to them that you have begun to take your business seriously and must report all sales to the state and pay the appropriate sales tax.  After all, I'm sure they don't want to get you busted for tax evasion!  Shocked

Let them know that when they support you they are supporting a local small business.  It also helps to give them the same gifts and samples, fancy packaging, etc. that you would give to any customer.  Show them that you appreciate their business and offer them special rates for referring customers.  When people (including family members) are treated well they don't mind paying taxes or even full price . . .  somtimes.

Also, feel free to charge them whatever you'd like:  wholesale, 1/2 price, full price, or give it to them for free (just tell them that they must market the products for you) . . . as the owner, you are the boss!  Just remember to charge the appropriate taxes on the amount of the actual sale.

There are a few things to consider when selling your to family and friends.

Keeping track of inventory is very important for reporting purposes . . . even on products you use for yourself!  This helps create checks and balances.

When I was selling Mary Kay, any products my daughter used (and did not pay for) were considered marketing & advertising. Yes, when I sold products to my daughter at the wholesale or retail price I charged her the appropriate taxes on the purchase. Hey, it's part of running a business! And after all, I kept a roof over her head and food on the table!!!

If I gave someone an item as a gift, I kept track of it, as well, and tracked it under gift giving.

Hope this helps!
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StampinFairy
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« Reply #13 on: October 08, 2011, 09:53:58 AM »

it does help, thanks

I've already been tracking my gift giving and my donations or marketing samples etc.  I have been keeping GOOD track of all of this stuff since January (at my father in law/tax man's advice) but I have only been charging tax since October 1.  I'm sure that will be an issue in April, but FIL will figure it out.

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