It doesn’t matter how small your business is. You still have to collect and pay sales tax. Oh, and here in Texas, your sales tax payment is due today! Yay!
Unless you are exempt (such as produce here in Texas), you are required to collect sales tax. This means that you must register for a state sales tax ID in your state. As a new vendor, you are likely to be wary about how to price your products. Should you include sales tax in your pricing or add it at the sale?
A lot of vendors includes sales tax in the pricing of their products because they don’t want to scare off customers. Adding sales tax seems to be “up charging” when you first start out. We were the same way. For the soaps and other products we made, we would include sales tax in the prices of our products. It made it easy and seemed fairer to our customers. There were no surprises.
After our first year of operation, we did an analysis of our profits and costs of materials. We were paying the top 8+ percent of all of our revenues to the state. That reduced our profit margin substantially. We wanted to raise our prices to address this tax that needed to be paid to the state. However, we were very concerned with alienating our customers.
We finally decided to raise our prices slightly and not include sales tax in the price. We posted our prices before tax.
After this decision, we went to market. We were very concerned that people would balk at our price increase and then have to pay taxes on top of that!
We were pleasantly surprised. People are used to paying sales tax. There was no reaction to charging sales tax on top of the price of the product. It’s just accepted.
So if you are worried about sales tax and pricing, don’t be afraid to price your products independent applicable taxes. Charge tax on the sale as required by your local jurisdictions and your customers will not even flinch.
Sales Tax Tips
- Register with the state for your applicable sales tax ID. A copy of the ID should be required of the market if it is an established market.
- Print and keep a copy of the sales tax ID with you at market and a digital copy on your phone. Be prepared to show it on demand to the tax authority when they come and inspect. Yes, they do stop by on occasion. Luckily I had a digital image saved on my phone.
- Collect sales tax as required by your jurisdiction.
- When the proceeds of your sales day are deposited in your account, move the sales tax you collected to a separate account. I use E*Trade for this. There is no charge for an account and it is easy.
- File your taxes in a timely manner. Timely filing may save you a few dollars. Here in Texas, we get a very small percentage off the sales tax due with timely filing.
- Pay your sales tax out of the separate account. It takes the sting out of the payment.
- Make sure you follow all applicable rules and regulations. Yes, they suck, but it is better than getting into trouble later.
See you at market!