New Sales Tax Rules

[pendennis]

Of course the seller collects and pays the sales tax. But your amounts aren't correct. It's not $60 tax on $1000 since the $1000 also includes the sales tax despite the seller telling the public there;s no sales tax. You have to work the numbers backwards. If he collects $1000 from his customer and the state sales tax is let's say 6%, the actual product was sold for $943.40 + 6% sales tax ($56.60) = $1000. The seller must send the state $56.60. He's left with $943.40 to cover his costs, overhead and profit. To figure the tax due in situations like this, the formula is to divide the final selling price by 100% + sales tax percent to get the original net selling amount. So in this example of 6% sales tax, $1000/106%= $943.40. Sales tax: $1000-943.40= $56.60.

Not so. When the tax return is filed with the state by the vendor, the sales tax due is 6% of the gross sales, less any discounts allowed by the state. If the business collects sales tax separately, the gross sale is net of sales tax collected and it goes against the calculated amount on the return. If you don't identify tax on the receipt, you have to calculate your tax due to the state on that total, at whatever the going rate is. The state doesn't give up $3.40 per transaction because the dealer doesn't identify the tax separately.

You might show a gross sale of 943.40 adding 56.40 in sales tax, to come up with $1000, but if you don't break it out on the receipt, you have to remit sales on $1000 to the state.

I've gone through a number of audits with state sales tax auditors, and they never let that one slide.

[Alan Klein]

Not so. When the tax return is filed with the state by the vendor, the sales tax due is 6% of the gross sales, less any discounts allowed by the state. If the business collects sales tax separately, the gross sale is net of sales tax collected and it goes against the calculated amount on the return. If you don't identify tax on the receipt, you have to calculate your tax due to the state on that total, at whatever the going rate is. The state doesn't give up $3.40 per transaction because the dealer doesn't identify the tax separately.

You might show a gross sale of 943.40 adding 56.40 in sales tax, to come up with $1000, but if you don't break it out on the receipt, you have to remit sales on $1000 to the state.

I've gone through a number of audits with state sales tax auditors, and they never let that one slide.

What do you mean by the business collecting sales tax separately? The seller collects sales tax at the time of sales. So whatever he collects includes the sales tax in the total amount. Could you explain this point?

On another point, what if the seller says, "Ok the cost to you is $1060 which includes sales tax. ($60)." And he writes $1060 at the bottom of the receipt. Since a vendor can;t waive collection of sales tax, it has to be assumed the tax is in the total amount collected. The state isn't entitled to 6% of the $1060, only 6% of the $1000. Otherwise they'd be getting 6% of the 6% which is taxing the tax already included. I'm not disputing your experience. But I'm curious if anyone ever tested this in court in Michigan? My experience with NYS Sales Tax people was that when I had an audit, the investigator did not understand all the facets of what she was doing. (I was in construction where there;s a lot of capital improvement where certain aspects are not taxed that she was not clear on). I had to call her supervisor and had her pulled from my case with another agent assigned.

[Alan Klein]

Not so. When the tax return is filed with the state by the vendor, the sales tax due is 6% of the gross sales, less any discounts allowed by the state. If the business collects sales tax separately, the gross sale is net of sales tax collected and it goes against the calculated amount on the return. If you don't identify tax on the receipt, you have to calculate your tax due to the state on that total, at whatever the going rate is. The state doesn't give up $3.40 per transaction because the dealer doesn't identify the tax separately.

You might show a gross sale of 943.40 adding 56.40 in sales tax, to come up with $1000, but if you don't break it out on the receipt, you have to remit sales on $1000 to the state.

I've gone through a number of audits with state sales tax auditors, and they never let that one slide.

I did a little research and found this article that concurs with my theory. Apparently, your Michigan sales tax auditors rips off their taxpayers.
https://www.accountingcoach.com/blog...late-sales-tax

[tonyowen]

You can't draw conclusions about a specific tax rate without understanding the overall tax burden as well as the services provided. Those Brits may or may not be paying as much in income and property taxes as we do in the US. And I suspect those Brits aren't complaining about the VAT when they're walking out of the hospital without a bill. (Well, they probably are but shouldn't.)

There is no such thing as free medical care in the UK - it all comes from income tax and other direct and indirect taxes. Also in Canada it would seem that medical care is free at point of service, but (in Ontario) everyone and all businesses have to pay Ontario Heath Insurance Plan (OHIP) fees. Not having lived in any other Provinces I'm not sure about the rest of Canada, but I assume something similar will exist.

VAT is a pain in the tail. It used to be 15% then 17.5% now 20%, but for some things you can arrange to pay cash and then the vat is not added.

I understand that "Value Added Tax" or "Luxury Tax" or whatever name a government uses, is worse in Scandinavia and Europe

regards
Tony

[pendennis]

I did a little research and found this article that concurs with my theory. Apparently, your Michigan sales tax auditors rips off their taxpayers.
https://www.accountingcoach.com/blog...late-sales-tax

In Michigan, gross sales are those which don't include sales tax (ditto Kentucky and Indiana). Sales tax owed to the state is calculated on that amount. Now, if you get audited, and everyone does eventually, you must show that you collected sales tax on gross sales separately on the receipt (cash register, written, etc.), or you have to remit 6% of the total gross sales. It doesn't make any difference that you may have collected the tax, but if you don't itemize it, you owe on the gross receipts.

Using your example, if the customer pays $1060, and you don't itemize the $60 as sales tax, you'll owe $63.60 to the state when you file your return.

My point is that taxing authorities demand consistency in your accounting procedures and business practices. If you choose to pay on a calculated basis, then you have to do it each and every time, and the tax auditors must know about this in advance. If you get sloppy, and vary on your receipts, you'll get a detailed examination of your books and practices. It doesn't just apply to sales taxes. If you resort to doing a lot of your flying at night, you'll get a flashlight in very tender places.

PS - I've been involved in sales tax audits in two states, and auditors used virtually the same audit programs in each one. As with any accounting procedure, it's about dotting i's and crossing t's. That's why CPA's are worth their fees, and why you should have a tax attorney on speed dial.

PPS - I read the article you referenced. I understand his procedure, but the auditors for Michigan and Kentucky required details and not calculations. My last sales tax audit from Michigan was in 2012. We have a CPA firm which does our books, and I sat in on the audits as a CFO. In New Jersey, your mileage may vary. See my comments above as to consistency of practices.

[cowanw]

Also in Canada it would seem that medical care is free at point of service, but (in Ontario) everyone and all businesses have to pay Ontario Heath Insurance Plan (OHIP) fees. Not having lived in any other Provinces I'm not sure about the rest of Canada, but I assume something similar will exist.
regards
Tony

For the record, you do not have to pay any Employer Health Tax if your annual payroll does not exceed $450,000. EHT also does not apply to any self-employed individuals. Employees and everybody else pays through the regular income tax calculations and so it is hidden and is subject to the usual jiggery involved in income tax.

[Alan Klein]

In Michigan, gross sales are those which don't include sales tax (ditto Kentucky and Indiana). Sales tax owed to the state is calculated on that amount. Now, if you get audited, and everyone does eventually, you must show that you collected sales tax on gross sales separately on the receipt (cash register, written, etc.), or you have to remit 6% of the total gross sales. It doesn't make any difference that you may have collected the tax, but if you don't itemize it, you owe on the gross receipts.

Using your example, if the customer pays $1060, and you don't itemize the $60 as sales tax, you'll owe $63.60 to the state when you file your return.

My point is that taxing authorities demand consistency in your accounting procedures and business practices. If you choose to pay on a calculated basis, then you have to do it each and every time, and the tax auditors must know about this in advance. If you get sloppy, and vary on your receipts, you'll get a detailed examination of your books and practices. It doesn't just apply to sales taxes. If you resort to doing a lot of your flying at night, you'll get a flashlight in very tender places.

PS - I've been involved in sales tax audits in two states, and auditors used virtually the same audit programs in each one. As with any accounting procedure, it's about dotting i's and crossing t's. That's why CPA's are worth their fees, and why you should have a tax attorney on speed dial.

PPS - I read the article you referenced. I understand his procedure, but the auditors for Michigan and Kentucky required details and not calculations. My last sales tax audit from Michigan was in 2012. We have a CPA firm which does our books, and I sat in on the audits as a CFO. In New Jersey, your mileage may vary. See my comments above as to consistency of practices.

Denis, I defer to your experience. Fortunately, I never did retail with receipts, but construction and service work with major clients, So we always mailed an invoice including sales tax clearly broken out if required. Being in construction doing capital improvement where only certain items had a sales tax, and service where there always was a sales tax, modified by government and charity organizations which paid no sales taxes, as well as private firms that did, our bookkeeping was very complicated. We also used a lot of resale certificates when buying material furnished to vendors and contractors. So material had to be tracked clearly as well as to what project it was used on. We had one sales tax audit in 20 years (NY where we were located). I considered it a success since the audit only came up with around $600 for the three year audit period. Of course, the accountant and in-house bookkeeper costs we calculated at around $8,000. Audits aren't cheap even if there are no discrepancies. What was interesting was the state tax auditor didn't understand the basic premises that make sales tax in the construction industry complicated. I had to ask her supervisor to replace her when she tried to charge sales tax when it wasn't required to be collected.

[pendennis]

Denis, I defer to your experience. Fortunately, I never did retail with receipts, but construction and service work with major clients, So we always mailed an invoice including sales tax clearly broken out if required. Being in construction doing capital improvement where only certain items had a sales tax, and service where there always was a sales tax, modified by government and charity organizations which paid no sales taxes, as well as private firms that did, our bookkeeping was very complicated. We also used a lot of resale certificates when buying material furnished to vendors and contractors. So material had to be tracked clearly as well as to what project it was used on. We had one sales tax audit in 20 years (NY where we were located). I considered it a success since the audit only came up with around $600 for the three year audit period. Of course, the accountant and in-house bookkeeper costs we calculated at around $8,000. Audits aren't cheap even if there are no discrepancies. What was interesting was the state tax auditor didn't understand the basic premises that make sales tax in the construction industry complicated. I had to ask her supervisor to replace her when she tried to charge sales tax when it wasn't required to be collected.

My second job in accounting was with Ford at the Kentucky Truck Plant, which was just being constructed. I worked in property and projects, so I was focused on the construction aspect, contractors, project accounting, etc. We had a direct pay permit, so we could amass taxable purchases and pay once quarterly. However, the contractors, vendors, etc., always had a problem with billing per the contracts. Our accounts payable people would go nuts trying to convince suppliers we were direct pay, even though purchase orders had the appropriate language.

Even worse, were those contractors who ran their businesses out of their hip pockets. They really had a hard time with our concept of 10% contract performance withholdings. Never a dull moment in those days. I'd mark up the invoices for the withholdings, and then I'd get dozens of calls from irate vendors and contractors.

[Jerry Bodine]

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[BrianShaw]

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