Taxes remain the top headache for small business owners in Redlands,California, according to Capital One’s Small Business Growth Index. Among those surveyed, 47 percent say taxes are a major worry this year, despite tax reform intended to help grow business.
Why? Simple – sales tax is a complex issue. State and local governments charge sales taxes when certain sales transactions are completed. The type of transactions taxed and the rates charged can vary from city to city or county to county – or there may be one flat rate for an entire state. Some products and services are taxed while others are exempt. Laws governing sales taxes differ significantly from state to state. To make matters even more confusing, companies are required to pay taxes on purchases they make and to collect tax on goods and services they sell. All this depends on the type of business you are in, who you sell to, and where the sales are completed.
The challenge for business is always defining the consumer. Sales tax is due when an entity is considered the ultimate consumer of an item or service. When the tax is charged and who is responsible for paying it all depends on when the item is considered “consumed.” When it comes to business purchases, taxed purchases can include everything from office supplies to production equipment, vehicles, computers and certain services. In addition, items your company sells are taxable.
On the other hand, if your company purchases a product or service for its own use, you must pay the appropriate amount of sales tax regardless of whether or not the tax is charged on the vendor’s invoice. If an item is purchased from a vendor in the state in which it is being delivered, you can simply add the appropriate tax amount to the invoice and include it in your payment.
The good news is you probably won’t be charged tax on an invoice for items that are purchased from out-of-state vendors, but it’s likely you will still be required to submit the “use” tax to your state. When the item comes from another state you must include the tax due on the return you file with your state and remit payment with the return.
What about exemptions? Every time you turn around, it seems like you have a customer or client claiming they are exempt from paying sales taxes. Here’s a hint – ALWAYS request (and document!) an exemption certificate or a resale certificate depending on the requirements in your state. Keep this document on file in case the state audits your business. Without it, you will be held responsible for not having collected the taxes and your company will be billed for the tax plus penalties and interest. The same is true for your company. If your business deals in items that are “resold” in any way, you can provide a certificate to the vendors providing those items and avoid paying tax on the purchases. However, be very certain that you understand the requirements associated with the tax exemption. The laws can be extremely complex and quite ambiguous.
A final word that applies not just to sales taxes but all taxes: always pay them when they are due. Penalties and interest on delinquent taxes can accumulate very quickly. You can face personal exposure beyond your role as business owner. Depending on the situation, the government can seize property and sell it at auction, freeze bank accounts, and file civil lawsuits and/or criminal charges.
If you or your clients have any tax issues or problems with the IRS/State or other federal tax problems, please feel free to contact me directly at (909) 570-1103 or by email at Carlos@HealthcareTaxadvisor.com
Carlos Samaniego, EA
Enrolled Agent
Licensed by The Department of Treasury to represent taxpayers
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1255 W Colton Ave, #535
Redlands, CA 92374
Ph. (909)570-1103
Fax (909)586-9190
