Collecting the Tax

Unless you're doing business solely in one of the handful of states where sellers can elect to pay the sales tax themselves instead of collecting it from their purchasers, you're going to be obligated to collect sales tax on all your taxable sales. In other words, you're generally going to have to compute the tax owed on each sale, at the time you make it.

Determining the amount to collect. If you make regular sales, it may be well worth the expense to set up a computer or a cash register that is programmed to determine the tax amount when you input or ring up a sale and that generates a detailed receipt that separately states the tax on the sale.

The alternative is to do the computation manually or on a calculator. Most states do provide useful tables of bracket schedules that show how much tax should be collected on a given sale at a given tax rate, but it can be time consuming to use a paper table.

Virtually every state requires sellers to separately state the collected tax on the invoices or receipts they provide their purchasers. Requiring that the tax be separately stated basically forecloses later arguments by sellers or purchasers that an unbilled tax was included in the purchase price.

Collection discounts. About half the states allow sellers to claim a fee as compensation for their time and expenses in collecting the sales tax on the state's behalf. The fee is set at a fixed percentage (0.5 percent to 5 percent) of the collected tax, but is generally subject to a ceiling amount.

Absorption of tax. Consumers will generally go to great lengths to avoid or reduce the sales taxes they pay. As proof of this phenomena, you need only go to a shopping mall parking lot in a state that's adjacent to a state with higher sales taxes. Based on the number of out-of-state license plates, it's clear that people will take a longer drive to reduce their shopping bill. Accordingly, if you're in one of those states where sellers can elect to pay the sales tax themselves, you may be tempted to exercise this option in hopes of drumming up business. For example, you may decide to use your ability to absorb the tax as a negotiating point with selected purchasers. Or, you may go whole hog and hold an "I'll pay your sales tax" sale. However, is this really a good idea?

Well, in either case, you mustn't lose sight of the obvious fact that absorbing sales taxes will involve significant costs. Depending on the sales tax rate in your area, you could be adding to your operating costs an amount equal to more than 10 percent of the sales price of each item you sell. Therefore, if you're already operating at a minimal profit margin, you'll want to analyze whether the increased costs will be offset by the additional revenues.


Work Smart

There may be a better solution to stimulating your sales than absorbing sales taxes. Several states have instituted "sales tax holidays" (intended to offset the cost of back-to-school purchases or other heavy purchasing periods) which provide a limited exemption for sales of items like clothing and school supplies during a specified period (e.g., in August). Sales tax holidays typically last for one week and are restricted to items priced under a certain amount.

Find out if your state offers such a holiday by contacting the state's department of revenue. Then coordinate your marketing and promotional efforts accordingly.