EatMoreJunk Posted July 15, 2015 Share Posted July 15, 2015 Please help me out on this .....should I be using TAX EXEMPT status? And if I don't, am I able to deduct what I pay in sales tax at the stores on my end-of-year tax returns? I've always been a bit confused on this. And I understand that these laws will differ from state to state. I'm in NC. Thank you!! Link to comment Share on other sites More sharing options...
AZVendor Posted July 15, 2015 Share Posted July 15, 2015 If you pay sales tax on your purchases of product that you then sell you can generally deduct the taxes already paid on your state sales tax returns as you calculate what you have to pay based on what you sold. If you get a business license and a tax exemption certificate that is then kept on file where you buy your products then you won't have to pay sales tax on your purchases, but you might still have to pay it on your sales depending on your state and/or county or city statutes. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 15, 2015 Author Share Posted July 15, 2015 Thanks. Yes I filed and got tax exempt status in NC ....but I would still have to fill out a monthly Dept of Revenues form and pay sales tax monthly thru some crazy formula that they use .... I just didn't see the advantage over simply paying sales tax at time of product purchase so I quit using it. However, I have not been deducting the sales tax on my returns so I need to look into that for 2015. Link to comment Share on other sites More sharing options...
joshnosh Posted July 15, 2015 Share Posted July 15, 2015 I am in NC as well and as I understand it, the formula is: 1/2 (sales) x (whatever your state and county tax rate is). Usually 7%. But as the fine print always says "consult your accountant" Link to comment Share on other sites More sharing options...
bspells Posted July 15, 2015 Share Posted July 15, 2015 Thanks. Yes I filed and got tax exempt status in NC ....but I would still have to fill out a monthly Dept of Revenues form and pay sales tax monthly thru some crazy formula that they use .... I just didn't see the advantage over simply paying sales tax at time of product purchase so I quit using it. However, I have not been deducting the sales tax on my returns so I need to look into that for 2015. See the thing is the state will get more tax because of the higher price per unit. Link to comment Share on other sites More sharing options...
AngryChris Posted July 15, 2015 Share Posted July 15, 2015 You're supposed to pay sales tax on what you sell, not what you buy. When a grocery store sells you a $10.00 case of soda for $10.70, they are charging YOU the sales tax that THEY are liable to pay. When you sell that case for $20.00, you're tax liability for that $20.00 in taxable revenue is $1.40, but you only paid $0.70. That means you still owe the state $0.70. You can generally use the receipts as proof that you paid some taxes, and you can deduct those directly from you sales tax liability, but the point is that you'll be in deep golpher from your state if you ever get audited and you owe sales taxes to the state. There is ONLY advantage in paying your taxes through the state is that you get to avoid penalties, interest, losing personal or business assets, and possible jail time. Pay them the way they want you to pay and let your accountant guide you with your receipts that will offset some of your liability. Remember, you are supposed to pay taxes based off of your SALE price, not your purchase price. Grocery stores simply assume you're a customer and carry the tax onto you. Getting an exemption means you plan on reselling it and they won't have to collect sales tax from you because it's on you to pay the sales tax at that point. Don't mess around with taxes!! You'll have better luck getting away with murder. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 15, 2015 Author Share Posted July 15, 2015 "Getting an exemption means you plan on reselling it and they won't have to collect sales tax from you because it's on you to pay the sales tax at that point." Okay, so to that point specifically, so even if I'm NOT using an exemption, I am still required to pay some portion of sales tax directly to the state on a monthly basis ... is that correct? Link to comment Share on other sites More sharing options...
AZVendor Posted July 15, 2015 Share Posted July 15, 2015 Yes, on a monthly or quarterly basis, whatever the department of revenue tells you. You should be able to find all this information your state's Dept. of Revenue website. You as the seller are responsible for the total sales tax on each sale that is taxable. If you have exemptions for soda and snack sales such as "food for home consumption" or something similar then your return must show the sales that fall under that deduction on the return. You then are taxed on the balance of the taxable sales. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 15, 2015 Author Share Posted July 15, 2015 Okay, so I'm still unclear on the benefits of using a tax exempt status ....sounds like I'm paying the same sales tax one way or another, why deal with the hassle? Link to comment Share on other sites More sharing options...
AZVendor Posted July 16, 2015 Share Posted July 16, 2015 The tax rate doesn't change, the base you pay it on does. Ultimately you aren't required to pay tax on the products you buy, but you are required to pay sales tax on the products you sell. We're not talking about benefits either way, just about how you go about paying the total sales tax due for every item you sell. The only benefit would be if you are allowed to exempt any of your sales from sales tax. If so, then use the ability to exempt your purchases to save you unneeded calculations. Link to comment Share on other sites More sharing options...
joshnosh Posted July 16, 2015 Share Posted July 16, 2015 "tax exempt" means you don't have to pay sales tax when you buy product. You are reselling it. You are then obligated to pay sales tax on what you sell. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 16, 2015 Author Share Posted July 16, 2015 "tax exempt" means you don't have to pay sales tax when you buy product. You are reselling it. You are then obligated to pay sales tax on what you sell. I get that ....what I don't get is why go tax exempt if we're gonna pay the same taxes in the end....why deal with the hassle/paperwork at all and instead simply pay sales tax at time of purchase and then pay the tax we owe on our omonthly sales. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 16, 2015 Author Share Posted July 16, 2015 The tax rate doesn't change, the base you pay it on does. Ultimately you aren't required to pay tax on the products you buy, but you are required to pay sales tax on the products you sell. We're not talking about benefits either way, just about how you go about paying the total sales tax due for every item you sell. The only benefit would be if you are allowed to exempt any of your sales from sales tax. If so, then use the ability to exempt your purchases to save you unneeded calculations. Okay, that makes some sense to me. So I should be using EXEMPT status to avoid paying taxes on my product purchases ....then I need to pay monthly sales tax to the Dept of Revenue on what I've SOLD ....has zero to do with purchases. Is that right? So by not using exempt status I am wasting money on sales tax paid ?? Link to comment Share on other sites More sharing options...
AngryChris Posted July 16, 2015 Share Posted July 16, 2015 Okay, so I'm still unclear on the benefits of using a tax exempt status ....sounds like I'm paying the same sales tax one way or another, why deal with the hassle? As I had suspected, you misunderstand what a tax exemption is. A tax exemption will exempt you from paying for taxes from your purchases. As a consumer, you are generally NOT liable for sales tax!! Ever!! What you don't realize is that, when you get a bill that includes sales tax, the seller (company that is REQUIRED to pay sales tax) simply passed the cost onto you! The seller uses the tax they collect to pay their state directly. With Vending machines, it's very difficult to collect sales tax on top of the sale, so it is INCLUDED in the sale price. If someone pays you $1 for a soda and your tax rate is 7%, then you REALLY charged your customer about 93 cents but the 7% sales tax was INCLUDED in the advertised price of $1. Here's what you don't understand. When your business is based around selling taxable goods, then you are REQUIRED BY LAW to pay sales tax per state law. The exemption isn't there to help you out financially. It's there to (if anything) make your bookkeeping cleaner. Let's say you buy 10 cases of soda from Sam's Club using your exemption. Each case has 36 cans. You sell EVERY can (all of them) for $1.00 for a total of $360. Of that, assuming 7% sales tax, you OWE $25.20 in state sales tax. Now let's say you go to Walmart and buy 5 24-packs forva total of 120 cans and sell ALL of them for $1 each for a total of $120. You OWE the state $8.40 for those. Between both the 360 cans from Sam's and the 120 from Walmart, you OWE $33.60 to the state. Now, if Walmart CHARGED YOU 7% on your 5 cases of soda which cost you $7/case ($35 for 5 cases), then they only charged you $2.45 which is what THEY as the seller would have to pay THEIR state if you weren't reselling it! But they have to ASSUME that you aren't reselling it and collect the tax or else the state would never get their sales tax. When you give them your exemption, they are only wholesaling it to you and they are no longer the reseller, so YOU become obligated. But you didn't use your exemption. What happens? The state checks your tax return and shows that you collected $480 from soda sales. That $480 at 7% is $33.60!! Now let's say you did well on the 10 cases from Sam's and you paid the $25.20, you still owe $8.40 from the other 5 cases from Walmart. You tell the state that you already paid taxes on it so they say "give us proof.". Out comes your receipt from Walmart showing that you ONLY paid $2.45, so you are STILL short $5.95. Now you're in a mess of showing receipts and recalculating how much you actually owe. State representatives aren't going to stand around while you play catch up. They will either give you a notice to pay what they tell you to pay by a deadline or Slam you with fees and penalties for not having your crap together. In contrast, if you bought ALL soda using your exemption, you simply take your gross taxable sales and use the state's formula to figure out your liability and pay. If you report $480 in taxable sales and they want 7%, you give them $33.60!! If this checks out, they won't ever bother you! And I purposely gave a complicated explanation because that's how complicated things will feel IF you get audited. You'll feel like they don't understand you and they are confusing you. Just keep this in mind. YOU, as the seller, are liable for ALL taxable sales based off of the SALE price, NOT the purchase price. If a place charges you sales tax, you can either ignore it and pay your taxes anyway (pay the $33.60 owed AND the $2.45 Walmart collected), you can gamble with offsetting your liability by using your receipts as proof (in case you get audited, which will be a nightmare), or you can simply use your tax exemption to EXEMPT yourself from paying Walmart (or whoever) the 7% they were going to charge and go ahead and pay your taxes normally through the state. The exemption doesn't mean less taxes paid! I buy things from grocery stores so rarely now, I don't even factor in the sales tax they charge. Also, I don't use my exemption from grocery stores because they can refuse to sell me soda if I'm reselling it. The bottlers don't want that. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 16, 2015 Author Share Posted July 16, 2015 Chris, thank you so much for the detailed explanation, that helps a lot. Still one point I wanna make sure I'm clear on. You said: "If a place charges you sales tax, you can either ignore it and pay your taxes anyway (pay the $33.60 owed AND the $2.45 Walmart collected), you can gamble with offsetting your liability by using your receipts as proof (in case you get audited, which will be a nightmare), or you can simply use your tax exemption to EXEMPT yourself from paying Walmart (or whoever) the 7% they were going to charge and go ahead and pay your taxes normally through the state. The exemption doesn't mean less taxes paid!" So with 3 choices there, if I use the 1st choice I am essentially paying sales tax TWICE ....once to Walmart and then again at the end of the month to the State. Right? So that's what I meant by viewing the Exemption as a "tax savings." I've then paid 7% to Walmart AND paid 7% to the State. I can definitely see, after your examples, that using Exempt status would make my bookkeeping cleaner in the long run. Link to comment Share on other sites More sharing options...
AngryChris Posted July 16, 2015 Share Posted July 16, 2015 Chris, thank you so much for the detailed explanation, that helps a lot. Still one point I wanna make sure I'm clear on. You said: "I've then paid 7% to Walmart AND paid 7% to the State." I can definitely see, after your examples, that using Exempt status would make my bookkeeping cleaner in the long run. To be accurate, you didn't exactly pay 7% to Walmart. You paid your liability and you reimbursed them for their liability. All of those taxes go back to the state. Using the 5 case example, you paid your 7% ($8.40) and Walmart's 7% (2.45). So yes, you over paid. I look at it like this... If I save significantly at the grocery store, I'm not going to care about the extra 7%. I'd rather get the good deal and pay an extra 7% on my PURCHASE price at Walmart than have them try to refuse to sell me products. Trust me, it can happen. Just make sure you pay your sales taxes and DEFINITELY consult with an accountant. My former employer had everything siezed. Link to comment Share on other sites More sharing options...
EatMoreJunk Posted July 16, 2015 Author Share Posted July 16, 2015 Yeah I guess the easiest place to use the Exemption is at Sam's ...and I spend approx $500/week there. Not worried about any product limitation from them thankfully. This has been a very helpful discussion, as I hoped it would be. I know it got pulled off the "main" board but it should probably be there so more vendors can be alerted to some of this IMPORTANT stuff. Link to comment Share on other sites More sharing options...
AngryChris Posted July 16, 2015 Share Posted July 16, 2015 Sam's club had a limit on their Pepsi products during the 4th of July. I believe the limit was 9,999. Link to comment Share on other sites More sharing options...
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