Here is a question for you, if a tax is imposed on the seller of the coffee mugs, how would that affect the market? Would that affect the sellers or the customers? It is a tax on coffee mugs that the seller sells and the customer buys, so who is going to pay it? How is it going to affect the market? Will it increase or decrease?
So many questions, and not nearly enough answers. With all the states minding their own sales taxes, could it be more complicated? As if the taxes themselves aren’t a huge burden on the sellers, things get even more intricate.
Let’s say, for instance, when a tax is levied on sellers of tea, a seller has not only to sort out the taxes but also see how it affects the buyer’s perspective. Whether it is right to pass the tax onto the buyer without losing share or would they have to give up from their own pockets?
And anyone who is not trained in this field will find their minds melting trying to figure this out. It is no easier when it comes to e-commerce sales tax. And because there can be multiple channels involved, eCommerce makes sales tax even harder.
Let’s say you are a coffee mug seller. In this guide, we will explore what is a seller’s tax on coffee cups, trying the best to leave you with an understanding of what sales tax is so we can prevent your mind from melting again the next tax season.
What, Basically, is a Sales Tax?
Being a seller, there is no way that you have never heard the term sales tax. But you could be paying it for years and not know what it actually means.
A sales tax is only charged when a product is purchased, thus it is a “consumption” tax. And it can neither be kept by the seller or the buyer, depending on which party pays for it. It is ultimately remitted to the government. Sales tax is also a local affair – meaning every state has the right to decide their own. Things that vary in different states:
- Products or services that are deemed taxable
- The sales tax that is applied
- How frequently and when the sales tax is charged to the online sellers
- Due dates of the sales tax
Sales Tax Compliance Without a Mistake
These are a few pointers that will help you in sales tax compliance.
Is your product taxable?
The most basic question is whether your product is taxable. Generally, all products that are tangible from property to toothpaste are taxable. But the things that come under basic necessities are not taxable.
What products are considered necessities? That varies from state to state. Grocery items – for example – are considered a basic necessity and are thus not taxed. But if you have yourself a dinner in a fancy restaurant, a tax is definitely charged.
Another example can be the clothes. They aren’t considered taxable in most places however the items that are exclusive luxury items are definitely considered taxable items.
More items that are considered non-taxable in most regions are:
- Medications (both prescribed and non-prescribed)
- Some books (these include religious books, textbooks, etc.)
- Subscriptions including magazines.
- Most digital products
These are some of the items that are considered non-taxable in most regions. Bear in mind that items considered basic necessities in one region may be taxed in another. It is best to check in all the states that you offer your product to know whether a sales tax is applicable
Make Sure to Register a Sales Permit
So we have now determined that your Starbucks & coffee mugs have a sales tax in the state that you want to sell them in. What next?
The next – and an extremely necessary step – is to get a sales to permit registered. Every region has some kind of tax authority where you can have your sales permit registered.
There is also an option to register an online permit. There is an almost instant response, if not then you have to wait 10 business days at most.
This may seem like an unnecessary step but in some states, this is actually considered as a fraud. So even if your intentions are not bad, you may end up in a lot of trouble, even if it is just for selling coffee mugs.
Due Date of the Sales tax in that Region
When you get your sales, there would be a particular date that would be assigned to you and the number of times that you would have to pay. It can be annually, bi-annually, or even quarterly.
Since the sales tax is used to buy budget items, the amount of sale you collect is directly proportional to the frequency of paying the tax. One can only imagine how many people get coffee mugs, so the tax on coffee cups will need to be paid pretty frequently.
The more states you sell in the more you will have to keep a check. Because the dates vary in each region, you need a careful system for each of them so that you don’t miss out on any of the dates.
Some sellers successfully convince the state to reduce the frequency of their sales admission. You can shoot your shot and you might pull it off as well.
Some things to keep in mind: Make sure to start collecting the tax only after you have the permit. Develop a system to keep track of all your different due dates. Your sales permit can also be used as a resale certificate that you can use to buy back items and sell them again.
Report the Sales Tax You Get
Once you start collecting the tax made to report all the sales tax that you have collected. You have to compile all the sales tax that you have made overall as well. Since these funds are used in the budget items, it needs to be specifically broken down for them.
If you are dealing with only a few states, tax filing will be relatively easy for you. But in most states, you are to break down the complete transaction so that the state can determine where the tax should be used.
Lastly, File Your Sales Tax Return
After you are done, make sure to file your tax return to the state. It can be easily done online, so there is not much fuss about it.
Even if you have not collected any tax then file “zero tax” with the state when the due date approaches. It is more of a check-in approach, if you fail to make it then you can be charged with a penalty.
Make sure that you check whether a sales discount is offered by the state.
You should now be able to wrap your head around the sales tax that you will be paying on your coffee mugs. Make sure to keep the pointers in mind when the tax season arrives. And make sure to follow the steps when you start in a new state.