Tax Insanity

Why?

[dpd1]

Well, spent the whole weekend doing my sales tax eFile for CA... Good times. And after all the pain, misery, and ridiculous amount of effort, entering in all the different district amounts for each sale... It was a whopping $3 difference than what it would have been, if I could just do the whole thing with my own district percentage. lol What a bunch of nonsense.

[Planet13]

From what I understand (and I ain't no lawyer so check with a lawyer first), the BOE doesn't care if you overcharge people sales tax, AS LONG AS YOU SEND IT IN TO THE BOE.

On the online form you will see a field for "excess tax collected." I am assuming that field is there because they expect you to send excess tax to the BOE instead of trying to refund it to your customers.

Of course, I have no legal background in this. You should get anything IN WRITING from the BOE regarding what you should do if you accidentally collect excess sales tax from a customer.

[Marshall]

excess tax collected

They probably want you to pay a sales tax on the excess sales tax or see it as income and pay an income tax ;)

Marshall

[dpd1]

Well, I know they definitely want you to pay tax on excess shipping, because they have that setup in there as well. It's funny that they can get all that put in there, but they apparently can't get a simple script that allows you to add the individual order totals into each district, and then have it automatically update with a new total each time. I'm sure there's plenty of smart people here that could code that in an afternoon... but not the state.

[Marshall]

I have to admit I do not understand how legally a state can require you to collect a sales tax based on the address of the buyer. After all, you are not conducting business in that person's county/parish. That, IMHO, is akin to me being required to collect tax for the other 49 states (plus DC) even though I do not have a physical presence there.

In Pennsylvania, it is based on where the business is located which not only seems more sensible, but makes filing taxes a lot easier.

Marshall

[dpd1]

It basically comes down to what side of the sociopolitical fence your state generally stands on. And of course, in CA... you have a government that basically thinks business people are a big bunch of scamming meanies, that go around taking advantage of everybody. So then they are on the side of protecting the 'little people'... John Q public, from all the terrible atrocities that us evil business people commit against them all the time. So I assume they look at it like it would be a terrible crime to make a person possibly pay .25% more in tax for an item they bought online, as compared to the percentage where they live. Of course... There probably shouldn't be different rates in the first place, but that's a whole other can of worms.

[votrechien]

For what it's worth, we charge our county specific rate on all transactions for our state. At the end of our reporting period, we have a list of all transactions by zip code and we charge the exact rate then (not at the time of transaction). In an excel worksheet it's easy enough to use a table rate look up function.

As you discovered, the overall discrepancy is only fractions of pennies on the dollar. I'm sure there's accountants who would say this is a really jerry-rigged way of doing things. But the accountants who I've spoken with say they can't see the IRS having an issue with doing it this way (and why would they? at the end of the day they're getting exactly what they should be getting in revenues).

[Marshall]

Just out of curiosity, and thinking of a brick-and-mortar store regardless what state you are in, what if the customer is paying cash and doesn't want to tell you where they live?

I remember a long time ago, Radio Shack always wanted your name and address for a sale no matter what you bought, even batteries. I always told them no and that it was really none of their business.

And so you know, I am not anti-tax, just anti-stupid-tax :)

Marshall

[dpd1]

Are you saying... theoretically if stores had to do it too? Because they don't make stores do it for walk-ins. Stores can just charge what their own rate is. But I guess they would have to charge what the person's rate was if they shipped something to them. Which I bet most store owners probably don't even realize.

The definition the state uses is "party that you ship to".

Another wonderful thing they do, is the rule that anything over $200 in sales tax for the year, automatically means you have to do quarterly filings. I've called them up for two years and basically demanded I file at the end of the year. I said I simply don't have time to go through all that for what amounts to a couple hundred dollars a quarter. The limit should be at least $2000 or something. $200 is ridiculous. Some people would have to go through all that four times a year to pay $50? Not surprisingly, the people in their office eventually admitted to me that they think it's stupid too, since it quadruples their work, for very little return in tax proceeds.

[Marshall]

Are you saying... theoretically if stores had to do it too?

I have a client in Florida who says she has to. And in PA, you have to file quarterly regardless the amount. But at least, if you do it early, they give you a 1% discount.

But I guess they would have to charge what the person's rate was if they shipped something to them.

This could be used as an argument that it keeps the playing field even for the business located in a specific county versus one shipping into the county. Still, it just makes it more complicated for the business, especially small ones, who may have an odd sale now and then in another taxing district.

Marshall

[MisterT]

next year, use your district %. or use a slightly higher district's % to be safe, if you are worried.

nobody is going to be beating down your door over $3.

if they do, pay the 10% or whatever penalty ($0.30).

[Tonearm]

I thought you were only required to pay district tax on orders shipped to the same district in which your business is located. Does anyone know for sure that's not the case?

[dpd1]

In CA? No. Though, depending on where you read their info, sometimes they make it seem that way. However in Pub #44...



"Retailers-
As a retailer, you are required to collect and report district use tax on a sale in a district in which you are “engaged in business” (please see page 1 for a discussion of “engaged in business”), and one of the following conditions applies:


• You ship or deliver the property into the district.
• You participate within that district in the sale of the property. “Participation” includes solicitation whether
direct or indirect. It also includes receipt of orders at a place of business in the district or through any
r epresentative, agent, canvasser, solicitor, subsidiary, or any other person working in the district under
your authority.
• You are a licensed dealer of vehicles or undocumented vessels which are registered by the purchaser in a
county with district taxes.
If a sale meets these conditions, you must collect district use tax on all taxable charges including those taxable
charges which result from repairs or reconditioning."



But... It could still be argued around the definition of "engaged in business". But bottom line... It's easy to say 'who cares' and do whatever. But I doubt I'd be saying that when they audit me 5 years from now and I have to go through a nightmare of past years to get it all figured out.

[Planet13]

Well, I know they definitely want you to pay tax on excess shipping...

Please double check on that. I think in California that is listed under a handling charge and is sales tax exempt?

[MisterT]

in CA you do not need to charge sales tax on shipping. read through the rules on that though, there are some specifics, as always. but generally, you don't need to charge tax on the shipping. handling, i'm not so sure.

[dpd1]

I understand shipping... This is about the excess charged over the cost of shipping, and calling that exempt as well. I forget where I read it in their pubs and certainly don't want to go back through trying to find it. But it seemed clear to me in their wording, that they consider anything charged over the cost of shipping, as income that should have tax paid on it.

Ok, I lied. I found it...


---------------


"Are delivery and handling charges taxable?

Delivery charges.

You have the property delivered directly to your customer using a common carrier, the U.S. Mail, or an independent contractor

Tax does not apply to the delivery charges under these conditions if the charges are clearly stated as a separate entry on the invoice or other bill of sale. If the delivery charges are not stated separately, they are taxable.

Example.

You sell a refrigerator and have it delivered by an independent contract carrier. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery (the amount charged you by the carrier). Since the delivery charge is stated separately, tax applies only to the charge of the refrigerator ($750). If the invoice had shown a single charge of $800, tax would apply to the entire amount.

Note: If you charge more for delivery than your actual costs, the added amount is subject to tax. In the example above, if you had charged your customer $60 for delivery, but your actual delivery cost was $50 (the amount charged by the independent contract carrier), tax would apply to the additional $10 charge.

You use your vehicle to make the delivery

Tax applies to the delivery charges if you use your own vehicle, whether or not those charges are separately stated on the invoice.

Example. You sell a refrigerator and deliver it to your customer using your own vehicle. On the invoice, you show a $750 charge for the refrigerator plus a separately stated $50 charge for delivery. Tax applies both to the delivery charge and the charge for the refrigerator.

Note: Tax does not apply to delivery charges using your own vehicle if there is a written contract of sale, signed before delivery, that transfers ownership of the property to the purchaser prior to delivery.

Handling charges. Handling charges are generally taxable.

Combined charges. If you charge a single amount for delivery and handling (for example, the invoice shows a single amount for "postage and handling" or "shipping and handling"), the portion of the charge that represents handling is generally taxable, while the portion that represents delivery may or may not be taxable."

[Planet13]

Ahh... thanks for finding that.

Well, best thing is to not overcharge for delivery (which is a good practice anyway) and be sure it is listed as a separate line item on the invoice.

However, that means if someone offers free shipping on an item (by building in the shipping fee to the product price), then the customer is going to be paying more in total sales tax.

Using the BOE example of a refrigerator costing $750 with a $50 shipping charge or an $800 refrigerator with free shipping, the customer is going to end up paying tax on an extra $50.

Wondering out loud here: Has anyone ever heard of people being fined by the BOE for not paying tax on the over charge of shipping charges? I know it must happen, but keeping all that data together would be a nightmare.

[dpd1]

If they invest the time to audit you, they're going to fine you for whatever they can find. Considering that those people have taken major cuts in the last couple years, I doubt many of them are in a great mood.

All you can legitimately claim as shipping, is what it costs you to ship it. So you subtract that from the total. If you charged them $50 for delivery and it cost you $40, then that extra $10 has to have taxes paid on it. Whether you eat it or charge the customer as "handling" is up to you.

I look at it like I'm the one being taxed... not the customer. If you take the customer out of the equation, it's easier to think of it that way. Because then it's basically like income tax. Ultimately it's our responsibility to pay. We can choose to have the customer reimburse us at time of purchase. But bottom line, as long as you aren't scamming the customer, I don't think BOE could give a hoot where the money comes from. Just as long as you pay it. I actually didn't collect tax from most in state sales last year and ate it myself. Getting charged tax online is going to keep being a huge turnoff, until it happens everywhere. Rather than risk loosing a sale, I figure it's better to get something than nothing. On quoted sales, I look at the situation and maybe factor the sales tax into the quote. That's not really a scam, since it's just a quote... The customer has every right to go someplace else if they don't like the amount quoted. But I think labeling something as 'sales tax' can have a psychologically negative effect, because they automatically start thinking they're spending more money than they have to.

I also don't even bother buying stuff tax free for the business, because that just adds to the nightmare of figuring out what they expect from you in taxes.

[votrechien]

However, that means if someone offers free shipping on an item (by building in the shipping fee to the product price), then the customer is going to be paying more in total sales tax.

You'll notice what Amazon does is to list the shipping charges, say $9.99, and then show "Super Saver Discount: $9.99, which essentially means they're getting free shipping but the shipping charges are clearly outlined.