Sales Tax: Retail & Prepaid
So we talked about how sales tax is applied on ly if, uh it is the end user on ly at the end user state but there are a couple of other criteria that makes something sales taxable and we talked all about all kinds of exceptions to but in the general sense an item is sales taxable if it is tangible if you can hold it in your hands um the us currently does not charge sales tax for digital goods um congress has been working on legislation for years to change that but you know how congress has these days um so it keeps I don't know dying in committee and then every year they raise it again and so every year is the same law over and over and over again that they keep debating it is a tangible good sold retail to that end user in the chain and it's within your own state so when you enter something into your ledger uh, you will need to put in either the sales tax rate for where you've sold it. So here in california we have to go by the district tax rates um so you'll have to mark in exactly w...
hat district it was and what the sales tax rate is for that district or you have to put in a reason why it's not taxable it's either not tangible it's not retail iii it's wholesale or you sold it out of state, so you'll need to mark that down because when you send in a sales tax return in general, you will need to say I've collected x amount of sales tax in all of these different counties or district's um, and then I didn't collect sales tax on all the rest of my sales because this much of my sales was out of state. This left much of my sales was digital goods this much of my sales, uh, was sold wholesale. Did I do all three of those? I feel like I maybe got them wrong, you're out of order. Um, uh, okay, so, uh, we also mentioned earlier this thing that I'm going to tell you is called prepaid sales tax that's if you paid sale sex on something that you weren't supposed to so let's say you go to joanne or michaels and you buy some, uh, yarn you're gonna pay sales tax on that they don't know that you're going to turn that into a hat that you're then gonna resell to someone if they think you're the end user, they don't realize that you're a wholesale uh, that you were a retailer who is then going to sell that to an end user, so if you've paid sales tax on something that you are actually buying wholesale you would take that out and entered into your ledger as prepaid sales tax so that at the end of the year you can deduct that from what you send the state because you don't have to pay for that stuff twice thankfully who um uh we're gonna look at the ledger in a little bit um we're gonna practice exactly that. Um, does anyone have any questions about the sales or that or gsd so far? Yes, when you're figuring out what district our county's tax rate you're looking you need is that based on where the sale took place, where the client lives or where you're you're based uh yeah, so it takes its based on where the product ended up. So if I sold something to someone in new york but they were having it shipped as a gift to someone here in california, I would still charge them sales tax even though the buyer was located in new york because wherever the product ends up is where you pay the sales. So if it ended up in l a it's nine percent um if I sold it right here in san francisco eight and a half um and so you would have to look up if you are in a state that has sales tax, you will have to look up the chart of all the district if they charge tax at a district level, you would have to look up a chart of all the district's and figure out, you know, what the rate is in this county versus this county versus this county, which is super fiddly and fussy and irritating. But it's the law, hey, what you gonna do? Um, you know all those, like ballot initiatives that people have, where they charge, like we're going to charge an extra quarter percent sales tax to build new schools. That's, how this comes into effect is that each little district then has a different sales tax rate. And then people like us collected, and then we send it in at the end of the year, and presumably had build schools. Um, but that's, a really good question.
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.