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Sales tax can be a tricky subject. Companies need to understand how sales tax works in their area and what to do to avoid any penalties or fines. In this article let’s take a look at 9 common mistakes that business owners make when it comes to sales tax and why they might cost your company thousands!
1. Not charging tax to customers
Not charging tax to customers is probably the most common and costly mistake that businesses make. If you’re a business owner, don’t think that it’s ok just because you aren’t making sales tax on your product or service. In many states, this can actually be illegal! In order to avoid any legal penalties or fines, we recommend checking with state and local government offices to make sure you’re charging the correct sales tax.
Most companies will charge sales tax on products and services based upon where their company is located and what type of goods they are selling (i.e., tangible versus intangible).
2. Charging the wrong sales tax rate
Another common mistake that business owners make when it comes to sales tax is charging the wrong rate.
For example, if your company sells products in New York City you may need to charge an additional .25% on top of whatever sales tax rate you typically charge (this can vary depending upon location).
Charging the incorrect amount will result in a late penalty from the government- so make sure to double check when it comes to this.
In most cases, you can find your local and state sales tax rates on their respective websites!
3. Collecting and remitting the wrong amount of sales taxes
Business owners have to collect and remit the correct amount of sales tax depending upon where their company is located.
While it may seem obvious, many companies will either charge too much or not enough regarding this, resulting in late fees from the government! For example, if your business sells tangible goods, you’re going to need to charge the proper sales tax rate based upon where your company is located.
If you’re unsure about how much sales tax you should be charging customers, make sure to check with government websites or speak directly with a local accountant!
4. Failing to report and pay sales taxes on time (or at all)
If you fail to report and pay sales taxes on time, the government will charge you late fees. These penalties can be costly for your company- so make sure that you’re following all of their rules!
If you are unsure how much or when you should remit tax, the best thing to do is consult with a local accountant.
If you’re having trouble keeping up with sales tax, it might be time to use a company link TaxConnex. Sales tax requirements are complicated, and they change often- so make sure your business is equipped to keep track of them!
5. Incorrectly calculating the amount subject to sales tax, such as when a product is sold in parts or pieces
If your company sells products sold in parts or pieces, you have to charge tax on each sale- not just the item’s total price. This is a common mistake among companies who sell tangible goods, and it can result in hefty fees from the government if you aren’t careful!
For example, let’s say you sell a new couch for $500. If your customer breaks up the payment into two separate transactions of $250 and $250, you have to charge sales tax on each transaction- which would be overcharged in this case!
To avoid these mistakes, make sure that if your products are sold in parts or pieces, you charge sales tax on the total price of your product.
6. Charging sales tax on shipping costs
While it may seem obvious, many companies will charge sales tax on the total price of their product, including any applicable shipping costs.
However, if you are selling an intangible good (like software), you should not be charging sales tax on your customer’s entire purchase- only the taxable items!
Is your business making these costly mistakes? If so, there’s no time to waste. It’s important to understand the tax laws and regulations in your area, so you know how much money you need to set aside.
