Sales Tax: Consumption, Sales, & Service


Bookkeeping for Crafters


Lesson Info

Sales Tax: Consumption, Sales, & Service

We're gonna talk about consumption taxes what the heck is that what is what is that? Um it's just a fancy way of referring tio taxes like sales tax like that like gs t that stands for value added tax um gs t stands for goods and services tax like they have in canada um the vat and uh europe and other places around the world um it's just a tax on buying stuff here in the us we have sales tax um which is just charged to the end user so here we have a whole production chain right? We've got the farmer we've got the sheep farmer who sells their wool teo um I don't know what you would call the person who like makes wool roving who like cards it makes smooth and makes it pretty um and then you've got the rover I'm just going to make this up what it's cool it's fine um the rover sells their uh wool to the spinner who spends it in two fabulous yarn uh who knits it into a well who dies it and then sells it to a knitter who then makes it into a fabulous scarf right um the sheep farmer is selling...

the wool at thirty cents an ounce let's say the rover then takes that marks it up sixty cents announced to the spinner the spinner marks that up to a dollar twenty for the yarn let's say it's like the you know, uh, un dyed wool dyed yard. Then the dire sells that at two dollars forty cents announced to the knitter who then makes it into a scarf. That's about four dollars and eighty cents. And house anybody who actually does like knitted goods. Or is a any point involved in this like, fiber arts chain? I don't actually know what these numbers. I have no idea what the going rate is for any of these things. So please don't blame me for having the wrong prices for this stuff. This is just an example. Um, if you have a value at attacks, what happens is you have, uh, attacks on every piece of the process. Every step in the process. Everyone charges tax along the way. So the sheep farmer who starts with, like, zero and then sells it at thirty cents let's assume that the tax, just for simplicity's sake, is ten percent in the examples in the music. So the sheep farmer charges ten percent tax to the rover who charges another uh, ten percent tax to the spinner and so on and so forth. So between the wool and the roving, you've added thirty cents of value. Right this step along the way, the rover has decided this now costs. This turning this raw wool into this beautiful roving adds thirty cents of value to it it's a thirty percent thirty cent price increase. So that's, what you're being taxed on is that thirty percent of value that you're adding by doing your thing to it along the way. And then the spinner says, well, when I take this wool and I turned into yarn, that adds sixty cents worth of value, so a ten percent they would charge uh, six cents worth of that to the next person in the chain and so on and so forth. So all of these people in a place like europe, um, would be collecting this value added tax along the way from all of these other people and then sending it in at the end of the year they would have ah vat tax return that they submit to their proper government authority in whatever country they're in, um and all of these people collect their taxes and then send it in at the end of the year, your question is not the same as price, right? Like right at that end scarf that may in the end be worth correct for eighty, I may sell for eighty bucks, but I'm not getting charged that I'm just getting charged the vat on the four eighty uh so yes, so uh it's whatever the difference in price is right it's the value that's been added to get from price a praise be okay so you know two dollars and forty cents worth of value was added by turning this yarn into a scarf I've bought the yarn for two dollars and forty cents I'm selling it for as a scarf for four dollars and eighty cents so I've added two dollars and forty cents worth of value to that scarf by knitting it I've added two dollars and forty cents worth of value to that yard by knitting it into a scarf if that makes sense so then I'm going to charge the end user ten percent twenty four cents in that does that make sense? This is one of the only things that I have like a really fancy chart because I feel like it's really tough to understand um from the perspective of someone in the u s we're not really used to this stuff. So what are we used? Teo? Well we in the us have sales tax this is the only point in the process when you have sales tax where tax is charged and collected, all of these other people are manufacturers or wholesalers and they don't charge you tax if I buy something wholesale I don't pay tax on that on ly the end user pays tax it's still the same amount of tax in the end if you add all of this up the three cents plus three plus six plus twelve plus twenty four you still get forty eight cents in tax. It still comes out the same it's just that in when you have sales tax on ly one person is collecting it and then sending it in to the government in this whole supply chain whereas with that everyone in the supply chain is sending it in there's also one other kind of consumption tax I didn't mention which is an excise tax, which is taxes on special categories of good. So if you like alcohol, um, like gasoline and cigarettes, I mean, those things that have, like, really big, expensive taxes, so if you were like a small distiller and you made like, uh, you know, homemade bitters and you wanted to sell those like that might have that might be subject to an excise tax because it's alcohol um so that's, just something to watch out for, um, there are lots of categories of things that are not taxable with a consumption tax, um and that's also really variable by country, by state, by city, etcetera. Um, you know, like I think new york city or maybe it was new york state, um change their laws about sales tax in regards to clothing and shoes uh, several years ago used to be that everybody would go over to new jersey because he didn't pay sales tax on that stuff and they felt like they were losing out on business and then I think they said a dollar amount like I don't remember what it was x hundred dollarsworth you don't paid sales tax audit, et cetera. Um, so in order to find out what the sales tax rates are or the vat or the gsd, um, you really need to check within your own country and then in the sort of principality state province level and then also with local level, um here in california, we pay state sales tax, and then we also pay by district, which is basically by county um, so if I'm selling to someone you know, in another city in california, I need to know exactly what the taxes in their county and that rate could be different and probably is different from the other, like sixty counties in the state, and they all have their different tax rates, and it all has to be tracked differently and that it all has to be submitted at the end of the year broken out by district thanks california way to make it easy on small business, and then there are other states that have no sales tax on and you don't do anything hey hey you if you are in oregon if you are in montana if you are in alaska um if you were in new hampshire I believe those are the four states in the u s don't of sales tax um you can go take a bathroom break now by we'll see you later uh everyone else probably wants to stick around for some of this pennsylvania doesn't have sales tax on clothes right? So they're exceptions at every level um they're exceptions at the city level this is just general but there are all kinds of exceptions you know there isn't sales tax on food but yes on luxury foods like chocolate, right? You know, like you really have to pay attention and find out all the little ins and outs of this stuff because of necessity I'm sorry chocolates a necessity chako is innocent right? So necessities um and then you know, alcohol like we mentioned like that's taxable but that's not even taxable the normal rate that's got extra taxes on it right? Because that's a whole other category so it's really important to know what you're selling the most common places that you're selling to geographically um what their rules are about collecting and sending in tax you know used to be that you really only had to worry about the stuff that you were selling in your own state, but if for example you go uh, cell somewhere temporarily, like you go to a craft fair in another state. You may have to get a seller's permit in that state, collect sales tax in that state just for that event, and then send it in, um and then it's different. When you send stuff in every year, maybe it's multiple times. And you're a lot of places you have to send in your here's the sales tax you've collected quarterly, um, maybe it's annually, but it's, you know, after the end of the year, it's in january, um, here in california, it's, typically at the end of june. Um, and you send it in in july. So I mean, just the very ability when it comes to these consumer taxes is staggering. Um, and there's, no way for me to cover every specific instance. So I'm just going to tell everybody here and at home to make sure that you know what your local laws are and to maybe look up some of the rules and regulations for the places that you happen to sell to the most.

Class Description

It is common to be intimidated by math and money, but managing your business’s finances doesn’t have to feel overwhelming. Bookkeeping for Crafters with Lauren Venell will give you the confidence and skills you need to start and maintain your own small business ledger.

Lauren is an artist and educator committed to making financial solvency accessible to independent entrepreneurs. In Bookkeeping for Crafters you’ll learn the basics of managing your money and how doing it yourself can reveal important opportunities for your business.

You’ll learn about managing different types of income and expense accounts and how to painlessly prepare for tax time. Lauren will make predicting fluctuations in your cash flow straightforward and easy while helping you develop a system that is right for you – even if you prefer pen and paper over spreadsheets.

If you are ready to change your relationship to money and manage a ledger that is customized to the way you do business – this is the class for you.

Be sure to check out Lauren's other course Bookkeeping for Etsy Sellers.