Dear Larry,
I have a one chair salon in my home and I sold $3000.00 in retail last year. Last year I paid the taxes on the retail and backbar when I bought the products. My question is- Should I continue to buy my products this way or should I do the tax defered and pay it at the end of the year? I already have an id # I just haven't known which way I should pay it. I'm new at owning a salon so any advice would be greatly appreciated. Thank you for your time.
I have a one chair salon in my home and I sold $3000.00 in retail last year. Last year I paid the taxes on the retail and backbar when I bought the products. My question is- Should I continue to buy my products this way or should I do the tax defered and pay it at the end of the year? I already have an id # I just haven't known which way I should pay it. I'm new at owning a salon so any advice would be greatly appreciated. Thank you for your time.
Janet
Janet, I received your note regarding retail. Although sales tax laws vary from state to state, and I’m not sure what state you are in, let me give you an overview.
The way I understand it, you are paying your distributor sales tax and then you are turning around and reselling those items. The problem you have is that you are paying sales tax on your costs but not on your sales price.
For example:
If your sales tax rate is 5% and you sold $3,000 worth of items, I would assume the cost of those items was $1,500. If that is the case, then you are probably paying $75 worth of sales tax. When you made the sale of those items for $3,000, you should have received and paid sales tax of $150. In my example, you are beating the state out of $75 of sales tax.
What you need to do is to discontinue paying sales tax on purchase of the retail products, and then charge sales tax on those products when you sell them. Based on the number of sales you have, I would presume that in your state you are not required to file sales tax reports monthly, but rather can file a report at the end of the year. This will save you a lot of paperwork.
The sales tax reports aren’t too difficult. If you need some help with the first sales tax report, you can contact Amanda Hansen from our office at ahansen@kopsaotte.com. She will direct you to the right person who will walk you through the first sales tax report. While I am always upfront about fees, there is a fee for this. The fee for us to do this is $50. Once we get you through the first report, you should be able to do them on your own.
On another item, so I don’t confuse you, you do need to pay sales tax on backbar items you purchase from your distributor. Normally, a distributor will give you two bills, one for backbar items, and one for retail items purchased for resale.
If you have any questions, please let me know.
Larry Kopsa CPA
Janet, I received your note regarding retail. Although sales tax laws vary from state to state, and I’m not sure what state you are in, let me give you an overview.
The way I understand it, you are paying your distributor sales tax and then you are turning around and reselling those items. The problem you have is that you are paying sales tax on your costs but not on your sales price.
For example:
If your sales tax rate is 5% and you sold $3,000 worth of items, I would assume the cost of those items was $1,500. If that is the case, then you are probably paying $75 worth of sales tax. When you made the sale of those items for $3,000, you should have received and paid sales tax of $150. In my example, you are beating the state out of $75 of sales tax.
What you need to do is to discontinue paying sales tax on purchase of the retail products, and then charge sales tax on those products when you sell them. Based on the number of sales you have, I would presume that in your state you are not required to file sales tax reports monthly, but rather can file a report at the end of the year. This will save you a lot of paperwork.
The sales tax reports aren’t too difficult. If you need some help with the first sales tax report, you can contact Amanda Hansen from our office at ahansen@kopsaotte.com. She will direct you to the right person who will walk you through the first sales tax report. While I am always upfront about fees, there is a fee for this. The fee for us to do this is $50. Once we get you through the first report, you should be able to do them on your own.
On another item, so I don’t confuse you, you do need to pay sales tax on backbar items you purchase from your distributor. Normally, a distributor will give you two bills, one for backbar items, and one for retail items purchased for resale.
If you have any questions, please let me know.
Larry Kopsa CPA
