When business owners start up a new business one of the challenges for them is state sales tax. What is taxable? How much do I collect? When do I have to send the tax into the state? All good questions that a new business owner will have.
Chances are that if you will be selling products in the State of Wisconsin, the transaction will be taxable. You are obligated to collect the correct amount of sales tax and remit it to the State. When you have to remit to the state is determined by your registration form when you filed for a seller’s permit number. The state may change your filing frequency if your sales change from the previous year of from the amount indicated on the BTR registration form. Our state has a pretty good website that will answer most of the other questions of a new business owner.
After going through several sales tax audits for past employers and clients, I just wanted to bring up a few tips so that you may perhaps avoid a time consuming and expensive audit experience.
Trouble issues I have seen are:
Tax Exempt Customers
Selling items for “Cash” or nice even amounts
Collecting the correct counties tax
If your customer is tax exempt, you MUST obtain a sales tax exemption certificate from them. If no form is on file, and you are audited, even if the name of the customer was St. Joseph of Israel, they are going to be considered taxable without proof otherwise. If you sell products to another dealer, commercial account, or retail store etc., you again must obtain an exemption form from them as well. Tax exempt organizations are used to being asked for a copy of the certificate. Some sales folks feel that they are inconveniencing the customer asking for the form; however, it’s a much greater inconvenience for the business owner when they get audited and then have to go back and request certificates from these same customers for sales that were possibly made several years ago.
Sales tax is to be clearly identified on all invoices. Depending on your accounting system, this may or may not be a challenge, however sales tax should be clearly shown on invoices to first show the customer you are collecting sales tax and secondly to keep record of the appropriate amounts to remit to the state.
Laziness or the theory of “perceived discount” sometimes brings about a sale in an even amount to make it easy on the customer for the transaction to move forward. “$10.00 cash gets you this widget”! Regardless if weather it’s a salesperson who does not want to count out or charge a customer change, or if the sales person is sending out a perceived discount to the customer, sales tax must be identified in each and every sale.
If you sell a product for $10.00 even, you still must record how much was in sales and how much was in sales tax. For Milwaukee the sales tax is 5.6%, so the product sales would be $9.47 and sales tax would be $0.53 (Divide the sale amount by 1.056 to get the product amount).
New business owners sometimes are not aware how they should deal with county sales tax. You need to account for all sales tax, separately by county, so that you will have that information for the ST-12 form you fill out for the state. The general rule of thumb is where did the product or service “exchange ownership”? If you have a brick and mortar store, this is easy, you sell widgets out of the store, and then whatever county your store is located in the county sales tax you should charge.
If you deliver product however and have a brick and mortar store, it’s the customer’s location to where you are delivering the product that must be taken into consideration when charging sales tax. Example is your store is in Milwaukee, but you deliver, for a fee, the product to Waukesha County. You should charge 5.1% and track those sales separate from the Milwaukee County sales. “Ownership” was exchanged when it was transferred out of your delivery truck to the customer. If this same customer came to your store and picked up the product, then they should be charged Milwaukee County sales tax.
Discounts the State allows you when you compile the sales tax return shall be considered income.
If the state has determined that you should remit the collected sales tax to them annually, I would recommend that you set up a second checking account or savings account if one would be available for your business and deposit on a monthly or quarterly basis the amount of sales tax liability that has been collected. January 31 has a way of sneaking up on you and by not keeping the sales tax monies available may cause some issues and penalties if you don’t have it when the sales tax return is due.
The most common issue that comes from an audit is Use tax. That will be the subject of my next post so please stay tuned!
I wanted to bring up common issues with sales tax; this post is by no means an all inclusive sales tax guide for the State of Wisconsin. There are many industry, product and service-specific issues that should be researched by a new business owner. I highly recommend a new business owner to contact the state and verify issues with them (take names, ID’s and phone numbers – all date stamped). Another way is to simply do a little research on what your competition does. Do all of your competitors charge sales tax for their IT services? If so, you probably should too!