Sales&Use Audit Results--good info

[Barbara Cashman]

I was just audited by the NC Dept of Revenue for compliance with the state sales & use tax collection/reporting for the last 3 years. Interesting results that I think I should share.

Things learned:

>as of 2 years ago, sales tax is applicable for shipping charges within NC. (yes, shipping is taxable)
>Items purchased out of state (ie: a kiln) are subject to appropriate taxes for the state in which they are received. That also means that catalog purchases (and ebay) are subject to your reporting that purchase on your 1040 as "consumer use" at the state tax rate, even if you purchased the item out of state. This also includes the normal consumer, not necessarily one who is in business.
>Also, materials and labor on a finished piece are taxable on the total bill.
>If you file a Sales and Use Tax form monthly or quarterly, you need to educate yourself on the "Use" portion of that form.

I got out lucky. Had to pay tax on my Denver kiln. However, since I am a manufacturer, the tax was 1% not 7%.

Our state is getting very tax-collective-aggressive due to the Bush cutbacks for state funding. Your state may be in the same boat.

Just know that you need Resale Tax Certificates for everyone you sell to that you do not collect tax on. I suggest you ask for a faxed copy of their exact certificate. It is easy to pick up the wrong number as the ID, and guess who will be liable if THAT happens!!? If you have any specific questions you think I might be helpful with (given this experience) please email me. - Barbara

[Sandpiper]

Gasp.......

Sandpiper, alias Robin

[Susan Moore]

Barbara,

I am not clear on this statement "Also, materials and labor on a finished piece are taxable on the total bill." Wouldn't your sales price include labor and materials?

Susan

[Kitty]

i thought the seller was responsible for collecting sales tax and paying it to their own state. i'm surprised NC cared about where you bought your kiln. that's a new one on me.

all states are realizing they can collect more and more money. it's not a Bush thing, it's a politician thing. politicians love money. that's why all the governors want to be able to tax internet sales and get that revenue, too. they can't stand the idea of not spending that money to influence voters.

in hawaii, everything you buy has tax. food, medicine, doctor's visits, attorney's fees, any kind of service, like the gardener, all merchandise, eating out, whatever. all of it is taxable, at 4%. which i guess works out a lot better than paying 8 or 9 percent in other states, except for food.

[Dani]

Barbara,

I am not clear on this statement "Also, materials and labor on a finished piece are taxable on the total bill." Wouldn't your sales price include labor and materials?

Susan

I always separated materials from labor and successfully argued my claim with the city sales tax division (this would be difficult to accomplish on small items, but on large commissions it isn't hard to keep track of). And, of couse, we were tax exempt on most of the work we did which was for churches.... wonder how long that will last. Still had to waste time filing those damnable returns though, despite the fact we owed no sales tax. We are still exempt for out-of-state purchases and for items shipped out. Worth checking in each state.... and each city for that matter, because they all have different rules.

[PDXBarbara]

Simplify your life... move to Oregon, Land O' No Sales Tax...
(of course we barely have schools anymore, but who's counting?)
PDXBarbara

[Cynthia]

The tax that bites my butt is the annual tax I have to pay for my equipment and furnishings...this also includes inventory. So I have to account for and pay taxes on my raw glass in inventory, my finished pieces in inventory, my kilns, molds, the building, the glue gun, the clock on the wall and tables and chairs, blah, blah, blah. Depreciation is nominal (or the scale I am allowed to use to determine depreciation is anything but generous), so it never seems to even lighten as the years have passed.

A friend of mine who is also self employed (as a plummer) told me about this tax and I thought he must be mistaken...He was spot on right and it really burns my butt. Not exactly friendly to or supportive of small, teeny weeny independently owned business. This time of year I get all anxious and start having little panic attacks regarding my ability to survive as a business person. My husband shows me the numbers and I shudder.

I don't mind paying my taxes, but enough is enough. If I could figure out how to do this work, and skip all the administrative and tax stuff I would be so much less prone to get psychotic. Your tale is instructive Barbara...makes me worry, but hopefully (even though I know all my ducks are NOT in a row ) the tax man is busy with something besides little ol' me. Do I remind you of an ostrich?

[K Okahashi]

Well, I guess migrating around has really taught me some about taxes. I found out that here in WA state, even if we run over to portland to purchase equipment etc, we still have to pay a use tax that's comparable to the sales tax here. I understand the rationale and gladly pay it now since I don't have to pay income taxes. My only beef about taxes is that no one's watching where billions get spent on stupid things like, oh, wars-- or back into the pockets of politicians....opps sorry -a whole other thread.

In California you get the sales taxes, use taxes and income taxes...but there is more sun there. Tradeoffs I suppose. No matter where you go, taxes are there. I suppose we could throw tea into a harbor somewhere...but I'm sure there's a tax or now a "fee" to dispose of tea.

Sorry for the rambling tonight...got maglesses and taxes on my mind too.

[Deb Libby]

Aiyiiyii ... ... another reason I love this state, even though I do freeze my backsides in winter! NH has neither sales or state income tax! This is the second time this winter that I've been flabbergasted as to what other's pay ... the first was in Jan. when I traded my well traveled friend/RV for a newer/fancier model while being in FL. "Old Gertrude" was a '95 RV with almost 100K miles of travel on her, mostly from show travel, and she needed a vacation. I was shocked to find that I was saving almost $6K in sales tax by being a resident of NH! Yikes! Barbara and Cynthia, you have my sympathies!

[Rebecca M.]

I call it legal extortion. They are so very good at it around here. At least my clothing and shoes are not taxed. Yet.

[Barbara Cashman]

I just caught up on this thread, so if there are questions still unanswered, I'll try to comply. "Finished WorK'---when we first started our custom stained glass business, we thought you charged separately for labor and materials. NC law states that a "finished" piece is totally taxable (labor and materials). the example I can use is if you brought you car to a mechanic for repairs, the mechanic will break out labor and materials and only tax the materials. This is because the product you brought in belongs to you. If a stained glass window is made, there is nothing the client brings in and the total job is taxable. We fixed our misconception quickly. Accordingly, if you buy something for your business (tools, kilns, etc) for "your use" (not for resale), it is subject to the "use" portion of your sales and use tax report. If the item is purchased on line, out of state, whatever, it is still subject to your state tax (at least in NC). As a manufacturer, any equipment I purchase is subject to a 1% tax, rather than the 7% sales tax. I just bought a screen printing machine off ebay, but need to report it on my Sales & Use Tax report at 1% on my filing. - Barbara