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A
Anonymous
March 27, 2018

Paying Sales Tax to the State

  • March 27, 2018
  • 2 replies
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Here is the scenerio:  Landscaper purchases materials for a project.  The landscaper pays sales tax on the materials.  When the project is completed the invoice shows plants, trees, mulch, etc as taxable.  The client pays amount which includes the sales tax.  

 

Question is:  Why am I having to report sales tax collected to the State when in reality the client just payed the landscaper back for the sales tax that they payed for in the beginning?

 

Should it not be the difference of the sales tax of the landscaper and the client because of % of markup?  ex: (landscaper price with a 6% sales tax: $100.00*6%=106.00  Client price is: $110.00*6%= 116.60)  So the difference is 10.60.  Would that be the amount to report to the State for sales tax?

    2 replies

    Rustler
    Rustler
    March 27, 2018

    Because logic does not apply in the US. We do not have input and output sales tax, VAT in other words.


    The landscaper should download, fill out, and hand to the nursery a resellers permit which allows them to sell to the landscaper sales tax free.


    Other wise sales tax (and any other fees) paid to get the item is part of the items cost as far as the IRS is concerned. And then you charge sales tax on your retail amount - regardless of whether you mark it up or not.


    Most states allow you take a credit for sales tax paid on items you resell - BUT that also requires that you track sales tax paid on ONLY those resale items as an expense, and then when filing sales tax, you adjust the amount due by the amount paid using that expense account as the adjusting account, zeroing it out. Take my word for it, I tried doing it that way, it is not worth the hassle.

    A
    Anonymous
    March 27, 2018

    The landscaper does have a resellers permit and was still charged sales tax!  This is in Michigan.  I am going to call the State in the morning to see what the heck is going on.

    And you are right about trying to keep track of the sales tax difference especially with the amount of product that is purchased throughout the season.

    Rustler
    Rustler
    March 28, 2018

    Not sure about the vendors up there, but here, when I buy and have a resellers permit on file with the vendor I remind the sales clerk before she starts ringing up the purchase.

      Service
      Service
      March 29, 2018

      I used to do that type of transaction with my business. I called it "pass through" taxation, although I don't know if that is the official term. 

       

      I would buy products and pay tax at time of purchase, then sell to my customers at the same price that I paid, including the sales tax. I would then report that I had zero sales to the state, since I wasn't paying tax to them this way. This was all before I was using QBO, but if I had done it within QBO, I would have treated my customers as tax free, since I already paid the tax on their behalf. As you can see, it isn't too kosher to do it this way.

       

      Later in my biz I transitioned to tax-free purchases and then collecting tax from my customers at time of sale. Quickbooks keeps track of these things very easily. At the end of the quarter, I run a report and remit to around 15 different entities. It takes me about 1.5 hours to do all these payments, mostly online, a few on paper that get mailed to the cities. There are QBO vendors that will do this for you, but it is very expensive. If you are lucky to live in an area that doesn't comprise multiple taxing municipalities, you will have it much easier than me. 

      A
      Anonymous
      March 29, 2018

      I don't think my transactions will be that in depth.  The State of Michigan told me I need to use the tax exempt form so I don't pay sales tax for materials.  All of my transactions are "on time" purchases so I don't get statements from vendors.

      Rustler
      Rustler
      March 29, 2018

      on time purchase, you still get a receipt, that is your paperwork to back up the accounting entries.

       

      Statements, unless they show actual puchase details, are summaries and are not supporting documentation for purchases anyway.

       

      Just like a bank or CC statement is not supporting documentation for accounting expense or income entries.

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