Tracking sales tax in your handmade business can be a total pain and it could get worse! On Tuesday 4/17/18 the Supreme Court took up the battle between states and web retailers over the collection and remittance of Sales Tax and this could result in small business owners have to collect and remit Sales Tax to every State that their customers reside in. I want to stress that there are no details available at the moment – those details will come once the decision is made – I also want to stress that adopting good habits and best practices NOW is a darned good idea! Here are some tips to help you keep track of your sales tax so it’s not such an overwhelming chore when it’s time to complete your Sales & Use Tax Return and remit the Sales Tax that you’ve collected.
Remember, while I am a bookkeeper – I am NOT your bookkeeper and I’m NOT a CPA, so I won’t be offering you tax advice.
Sales Tax rules are different in every state – and I’m no expert when it come to the rules in every state – so I won’t even try to advise you. I will say that each of you should have a Sales & Use Tax account set up with your State and that you should be tracking and collecting sales tax on your finished items when you sell them. Setting up a Sales & Use Tax account with your State is almost always free.
In my own handmade business – Fanciful Things, LLC – here in my home state of Vermont I have to deal with these Sales Tax rules when selling my finished knit or crochet items:
- Out of state sales are not subject to tax
- Vermont sales of clothing and wearable accessories priced under $100 are not subject to tax
- Vermont sales of all other items are subject to 6% sales tax
- Orders shipped to or sold in 14 specific towns are subject to an additional 1% Local Tax
I use QuickBooks Premier desktop for my accounting and it allows me to create and use different sales tax items. So in my Item List I created the following Sales Tax items:
- Out of State with a rate of 0%
- Clothing & Accessories under $100
- Clothing & Accessories over $100
- Vermont 6% Sales Tax
- 14 additional Sales Tax items (one for each town) at a rate of 1%
- and then I created 14 Sales Tax groups that included BOTH the standard Vermont 6% Sales Tax item AND the Local Tax item – so that it would calculate the full 7%
Here is an image of what a Sales Tax Group looks like in QuickBooks:
Here is an image of what the Sales Tax section of my Item List in QuickBooks looks like:
As I create the invoices to record my sales, I simply choose the correct Sales Tax item and QuickBooks keeps track of BOTH my income and the tax I charged/collected and owe based on the tax categories that I created. When it’s time to file my Sales Tax Return all I have to do is run a Sales Tax Liability Report and all of my numbers are right there along with the amount of Sales Tax that I’ve collected and need to remit – all I have to do is go online and enter the numbers and of course, pay the Sales Tax.
Accounting software such as QuickBooks Premier makes life so much easier. Yes, it takes some time to get things setup correctly and a few extra minutes to create the invoice and record the payment – – but when it’s time to file your Sales & Use Tax Return ——-it’s a breeze! See the image of the Sales Tax Liability report that QuickBooks will create for you below:
For those of you that don’t have or can’t afford a bookkeeping/accounting software program such as QuickBooks Premier you can create a simple Excel spreadsheet with your Tax Categories and Rates along the top as column headers that will do the trick for you – it sort of mimics the Report that you could get when using QuickBooks. Here’s a sample screenshot:
Additional information about the debate in the Supreme Court that could impact your handmade business:
Yahoo! Finance – Small businesses will be the losers in the Supreme Court’s online sales tax case – https://finance.yahoo.com/news/small-businesses-will-losers-supreme-courts-online-sales-tax-case-141315402.html
New York times – Supreme Court Divided on Sales Taxes for Online Purchases – https://www.nytimes.com/2018/04/17/business/justices-divided-on-sales-taxes-for-online-purchases.html
ABC News – Supreme Court takes up battle between states, web retailers over sales tax – http://abcnews.go.com/Politics/supreme-court-takes-battle-states-web-retailers-sales/story?id=54526312
Until next week – Happy Handmade!