rlowry03 Posted 10 Sep 2011 , 10:35pm
post #1 of

Is there any reason I should NOT apply for a sales and use tax permit?

Since the cottage food bill passed I'm trying to start a home business. I got my business name registered. I know that I need the sales tax permit to buy wholesale. I'm a little confused about filing taxes though. If I get the permit, I know I have to file taxes based on what I buy and sell. But since baked goods aren't taxable, do I only pay taxes on supplies that I keep and use like pans or decorating tips? And is this different from the use tax?

Can someone break it down for me? Should I get a permit to buy wholesale, or should I forgo the permit and just buy at regular stores so I pay tax on taxable items and then don't have to file those separately?

34 replies
jason_kraft Posted 11 Sep 2011 , 2:11am
post #2 of

If your products are not taxable, you would not legally qualify for a sales tax exemption -- someone has to pay the sales tax. You shouldn't need a sales tax permit to buy wholesale, your business license should be enough.

scp1127 Posted 11 Sep 2011 , 2:20am
post #3 of

You will be subject to use tax. (Does Every state have it? Jason, are you out there?) Be careful. States are finding this to be a lucrative collection with penalties, as many businesses ignore it.

Use tax is collected on all of your receipts where you don't pay your state sales tax on equipment, supplies, etc. You get a credit for out-of-state taxes paid, but for all of those products that you think you beat the tax system... no, you didn't.

For example, if you buy a $4000.00 oven out-of-state and they don't charge you sales tax, you owe your state $240.00 based on a 6% rate. Also, not filing a use tax return is a good way to automatically get an audit, as we all owe this.

Edit: I gave the example of an oven, but an auditor will go through all of your receipts, like those cute little cutters you bought. We all know that these receipts can really add up over a year, or many years if you are audited.

jason_kraft Posted 11 Sep 2011 , 3:12am
post #4 of

Every state with a sales tax has a use tax as well, but for most businesses the vast majority of their purchases will already be subject to sales tax, so no use tax would be owed on those transactions.

If you have a sales tax exemption (because you collect sales tax on finished products) then you are also exempt from use tax for the ingredients that make up those products. It's a moot point for TX though, since to-go baked goods are not taxed so there would be no sales tax exemption for the baker (when buying ingredients).

scp1127 Posted 11 Sep 2011 , 5:17am
post #5 of

Thanks Jason. But you are in CA where most of your supplies are readily available. I have stacks of receipts from internet purchases that have no out-of-state sales tax applied. All of these items, except ingredients are subject to use tax. And I know that decorators with multitudes of cutters and other decorating equipment are sure to have a pile of receipts also. I don't know the penalties, especially for multiple years, but I'm sure they aren't pretty. Didn't CA start this whole use tax collection craze when they got into financial trouble? It was always there, but not aggressively enforced. All states are looking for revenue sources and this has been a good one.

this-mama-rocks Posted 11 Sep 2011 , 6:17am
post #6 of
Quote:
Originally Posted by jason_kraft

Every state with a sales tax has a use tax as well, but for most businesses the vast majority of their purchases will already be subject to sales tax, so no use tax would be owed on those transactions.




NOT TRUE.

Your comment assumes the OP simply buys ingredients, supplies, and equipment only from vendors located within the OP's taxing authority. Please re-read my answers to your questions to me on this same subject in a previous thread.

It's not the best idea to make sweeping generalizations about potentially serious issues taxes. Especially when you are not an authority on the subject.

There are very complex and little-known issues involved, such as interstate sales/use tax reciprocity, additional county- or municipality-imposed taxes, vendor nexus, and business classification models.

scp1127 Posted 11 Sep 2011 , 6:27am
post #7 of

this-mama-rocks, I am well aware as well as I'm sure Jason knows the law. But the majority of CC members have probably never even heard of use tax, so simplicity is key. I addressed the interstate transactions and Jason used the words, "most" and "vast majority". It sounds llike you are just picking based on a disagreement in another thread.

costumeczar Posted 11 Sep 2011 , 12:17pm
post #8 of

Uh, I know this-mama-rocks, and she used to be a tax auditor for a well-known tax authority, so yeah, I listen to what she has to say.

I pay sales tax but Virginia also has a personal property tax too, and they don't care if you've paid sales tax on something or not. They still charge you for the personal use part of your equipment etc. They also charge you sales tax at the end of the year if you didn't pay it on out-of-state purchases. I fill out that stinking part of my tax return every year, booooo.

I also have a few wholesale accounts, and they all require a sales tax ID plus a business license. If you don't have both, they won't sell to you.

For the OP...For something like this I'd check with your county's sales tax registration office or wherever it is that you'd go to get the number and ask what they think you should do. They'll have much better (and more accurate) answers than what you can get on this forum. The laws are so different everywhere, you need to get the real deal from the source.

kelleym Posted 11 Sep 2011 , 2:10pm
post #9 of

Oh my goodness, please contact the Comptroller directly.

http://www.window.state.tx.us/contact.html

jason_kraft Posted 11 Sep 2011 , 3:38pm
Quote:
Originally Posted by this-mama-rocks

Quote:
Originally Posted by jason_kraft

Every state with a sales tax has a use tax as well, but for most businesses the vast majority of their purchases will already be subject to sales tax, so no use tax would be owed on those transactions.



NOT TRUE.




What's not true? For in-state purchases (which will be most purchases for most people, with the exception of online purchases) no use tax is owed, since sales tax has already been collected. You absolutely need to keep track of your online and out of state purchases though, so you can pay the necessary use tax on them, and I agree that business in more remote areas that rely more on online/out-of-state purchases will have more use tax to pay.

Unless I'm misunderstanding how use tax works?

scp1127 Posted 11 Sep 2011 , 5:46pm

costumeczar, I was not disputing her information. And Jason did not do what she said. But general information that would be helpful to the CC members that would prompt them to seek advice was all we were trying to do. One of my majors was accounting, but I don't do my own taxes. I leave that to people who earn their living in that field.

this-mama-rocks Posted 11 Sep 2011 , 6:32pm
Quote:
Originally Posted by scp1127

this-mama-rocks, I am well aware as well as I'm sure Jason knows the law. But the majority of CC members have probably never even heard of use tax, so simplicity is key. I addressed the interstate transactions and Jason used the words, "most" and "vast majority". It sounds llike you are just picking based on a disagreement in another thread.




There was no disagreement on the other thread. Jason had asked for clarification and explanation on sales/use tax situations, and I freely answered all questions.

"Simplicity may be key", but if a CC member makes the "vast majority" of purchases online, or pays a non-reciprocity neighboring state's sales tax on "most" purchases, that CC member may be in for a very rude awakening come audit time. In those instances, Jason, additional use tax WOULD be due on those transactions.

Answering TX tax issues, when the answering party is a CA-based business that does not deal in a lot of taxable interstate commerce, is not a good idea. Many cc members would read a single post, take it as gospel, and do no further research on the subject.

BTW, spc, I DID earn my living in that field for over a decade. I was a state sales/use tax auditor for almost 9 years, then a multistate sales and use tax consultant for KPMG Peat Marwick.

jason_kraft Posted 11 Sep 2011 , 6:42pm
Quote:
Originally Posted by this-mama-rocks

"Simplicity may be key", but if a CC member makes the "vast majority" of purchases online, or pays a non-reciprocity neighboring state's sales tax on "most" purchases, that CC member may be in for a very rude awakening come audit time.



Correct, but my post indicated that most bakery businesses tend to purchase most of their ingredients in-state, which is the opposite of your statement.

Those in-state purchases are typically not subject to use tax (excepting situations with out-of-county purchases at different rates). I then clarified in a followup post that businesses who make more online/out-of-state purchases would end up owing more use tax.

I'm still trying to figure out what about my post was "NOT TRUE".

The topic of use tax (while an important one) is somewhat orthogonal to the topic of this thread, namely sales tax permits and exemptions. If OP has a sales tax exemption, qualified purchases would be exempt from both sales and use tax. If not then OP would owe sales tax or use tax on said purchases.

I'm sure the administration and enforcement of use taxes is quite complex, but the concept is pretty simple...if you buy taxable stuff in your home district, you pay sales tax. Otherwise you pay use tax and receive a refund for any sales tax you've paid.

this-mama-rocks Posted 11 Sep 2011 , 6:55pm

And the next sentence reads "In those instances, Jason, additional use tax WOULD be due on those transactions.".

Which means "no use tax would be owed on those transactions" is not true.

jason_kraft Posted 11 Sep 2011 , 6:57pm
Quote:
Originally Posted by this-mama-rocks

And the next sentence reads "In those instances, Jason, additional use tax WOULD be due on those transactions.".

Which means "no use tax would be owed on those transactions" is not true.



So for in-state purchases where you've paid sales tax, additional use tax would be due?

"Those transactions" = those purchases already subject to sales tax (i.e. in-state), I wasn't referring to ALL purchases made by a business. This is based on the earlier part of the sentence: "purchases will already be subject to sales tax".

this-mama-rocks Posted 11 Sep 2011 , 7:04pm

And OP knew all your assumptions...how?

The answers to your questions about in-state purchases was addressed pretty thoroughly in the other thread. It's a pretty lengthly explanation.

scp1127 Posted 11 Sep 2011 , 7:14pm

this-mama, in my educated opinion, anyone who does their own taxes is asking for a problem if they don't have considerable knowledge. Giving a simple explanation that will put them on the path to knowledge and prompt a meeting with a CPA is more help than giving more information than they can handle.

this-mama-rocks Posted 11 Sep 2011 , 7:34pm

And CPA's are usually NOT trained in the world of sales and use taxes. I audited many, MANY taxpayers who shrieked at me about WHY didn't their CPA tell them about this???!!!!!

It's better to give someone more information than they can handle, than to give them less information than they need.

In my educated opinion.

scp1127 Posted 11 Sep 2011 , 8:03pm

We have had countless CPA's and all have made horrendous mistakes in my husband's medical practice and land development companies. On this side of the desk, it has been laziness, sub-par work ethic, and the fact that you pay every month and don't find out for two years that the work wasn't done. They know their job, but because the average businessperson doesn't, they get away with leaving out essential data. And the averae small business cannot afford to sue the CPA. We have a large lawsuit against one and he even knows how to work that system to not be accountable for his work. Luckily, our attorney specializes in these situations. The rate for this type of legal work is at a premium.

I happen to despise accounting, but realized at a young age , the value of the skill. I keep my own books and deliver the totals needed to the CPA. I concentrated on cost accounting, so I happily leave the taxes to the experts.

I think that making a baker aware that if you didn't pay your state tax on it, you owe it, is the message. And in a generalization, paying out of state tax is usually reciprocated. Therefore, keep good records, know that you approximately owe tax on untaxed items and the difference if another state's tax is lower. And make sure the CPA you chose is provided the receipts that may be in question.

this-mama-rocks Posted 11 Sep 2011 , 8:59pm

Keeping good records is only part of the answer. Knowing the tax codes that affect your business, and using that knowledge to reduce your tax/penalty/interest exposure is the other part. And as I mentioned, most CPA's do not have sales/tax training. You have to retain a sales/use tax consultant, lawyer, or accrual/payment service. Your two-sided advice to ask a CPA, then bashing CPAs is confusing.

Sales/use taxe auditors have a perverse glee in exploiting a taxpayer's ignorance of the law and inexperince applying it. It's an obscure, complicated tax, and not many people have firsthand experience with it. I thought that freely sharing this obscure knowledge would be helpful.

The repeated generalizations, the fairly rude attitude toward the information I shared, the dismissals of the experience and credentials behind that information, and the advice to enlist an untrained, hopefully-not-inept, lazy, sub-par CPA must be the way to go. My bad.

OP, I guess you should ask scp for advice on this topic, as I can't be of any help - good luck!

costumeczar Posted 11 Sep 2011 , 9:12pm
Quote:
Originally Posted by scp1127

costumeczar, I was not disputing her information. And Jason did not do what she said. But general information that would be helpful to the CC members that would prompt them to seek advice was all we were trying to do. One of my majors was accounting, but I don't do my own taxes. I leave that to people who earn their living in that field.




My comment wasn't necessarily directed at you, it was just to make the point that I'll prefer to take tax advice from someone who has experience in the area!

Regardless, the OP and anyone else who needs advice on specifics of their own state's taxes should contact the government in that state, not an online forum!

costumeczar Posted 11 Sep 2011 , 9:16pm

I agree that a lot of CPAs are willing to cut corners and fudge the law in order to get their clients larger refunds, too. I'm pretty conservative with the deductions that I take (or don't) but I've seen a lot of people on here saying that their tax guy told them that this and that is okay to do, when I know it's either not, or it's very borderline.

rlowry03 Posted 11 Sep 2011 , 9:46pm

Thanks for all the info. I think I got some answers on major points and ended up even more confused on others! So I'll contact my local tax office. I plan to keep my own books, but I may consider contacting an accountant after I get some answers from the tax office.

scp1127 Posted 12 Sep 2011 , 12:02am

I'm not arguing, but a separate sales tax CPA and lawyer in that field is just too unrealistic for most of the people with little cake businesses. My husband doesn't even have that. And so far, that has not been a problem. We have about ten different attorneys and I know this isn't one of them. And what is to keep a sales tax CPA from doing a poor job? And in this economy, attorneys are dragging out their work, keeping the opportunity for retention even farther out of the reach of the small businessperson. There comes point when these tiny businesses have to do the best that they can.

Costumeczar, as I stated, I never touch the tax part myself. But I also don't get my tax information off of CC.

For people who want to look into this more, google it, get familiar, and know the right questions to ask your accountant. For small businesses, you will know the extent of your liability based on that special pile of receipts. This will help you decide how to proceed.

this-mama-rocks Posted 12 Sep 2011 , 12:56am
Quote:
Originally Posted by scp1127

I'm not arguing, but a separate sales tax CPA and lawyer in that field is just too unrealistic for most of the people with little cake businesses.




Which is why I tried to offer some specific, detailed advice, for free - instead of my previous $150/hour rate.

scp1127 Posted 12 Sep 2011 , 1:05am

And since you brought that up, a person would have to have over $8000 in qualifying purchases to have a possible liability of about $500.00... probably not enough to cover a consultation with a tax lawyer. Which makes my information relevant. The cost of repaying the tax is less than the cost of the advice. And the average small time baker may only have only $500 to $$1000 in receipts, making a max liability on $1000.00 only $50.00. Not enough to pay you.

this-mama-rocks Posted 12 Sep 2011 , 1:35am

Paying the tax is not what will kill a small business. The penalties and interest usually doubled a taxpayer's assessment, and sometimes tripled it.

Wow, you are just so......condescending, snotty, and defensive when someone else has something to contribute. Your responses to my posts don't even align with what I have tried to say or explain.

I see it really bothers you to not have the last word, even if it contradicts what you said 2 minutes beforehand.

jason_kraft Posted 12 Sep 2011 , 1:39am

From this angle there is plenty of condescending, snotty, and defensive behavior to go around. icon_lol.gif

BTW I would recommend refraining from personal attacks in the future, they are not allowed here.

scp1127 Posted 12 Sep 2011 , 1:46am

My point was that repaying the tax is more economical than hiring a specialty lawyer or CPA.

And the same thing can be said about your responses. I have been careful to state that it is my opinion, but I am sure that a repayment, if unsure, of a very small amount of money makes more fiscal sense than to hire an attorney, which is your professional opinion. You never did comment on the benefits of hiring an attorney for $500 to save $100. And I don't know of an attorney you could even get for $500.00. No penalties if no question about the amount. I look forward to your response, since it has been ignored. This is not a contest. I don't want to win, but I certainly will not let a comment stand with no rebuttal, that does not make fiscal sense to these small businesses.

jules5000 Posted 12 Sep 2011 , 1:50am

scp1127 was not trying to be rude or have the last word. You both have stated some information that is helpful to have for small business to consider when considering how they are going to go about paying their taxes and who they are going to hire. I am sure that there is something different about every state in the union and everybody knows that what both of you have stated is just the beginning of where to go.

This_Mama_rocks: I think that you are taking offenses where none were meant. I never saw any rudeness in her statements. I do not know her personally, I have just read many things that she has written and feel that she has something to contribute to the conversation on here as well as you do.

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