Am I supposed to charge sales tax?

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So you own a business and you’re wondering if you are supposed to charge sales tax for what you sell or for a service that you provide. You may be thinking, “I have a service based business and my neighbor doesn’t charge sales taxes, so I don’t have to.” If that is what you are thinking, you may be very wrong. For example, if your business is to repair bicycles, which is a service based business, you should be charging sales tax, at least in Utah. Read on to find out why. Not only that, but you may also be wondering about what rate you’re supposed to charge, what you’re supposed to do with the cash when your customers give it to you, and how you report it. Have any of these questions popped up in your head? If so, this post is for you. Today I have the urge to talk taxes. Let’s get started.

What are sales and use taxes anyway?

They are transactional taxes. When certain transactions take place, the purchaser (your customer) has to pay a tax agency a required tax. The business owner (you) is charged with collecting that tax from the customer, holding it in reserve, and filing it at the right time to the right tax authority. It’s almost as fun as watching a slinky fall down the stairs. If you don’t charge a sales tax when you are supposed to, then the purchaser is required to remit that tax on their own, and that is called a use tax.

We are looking at Utah here:

Sales taxes are different for every state so it can really be a headache to manage; especially if you’re business has several locations. Since Dashboard Accountants is based out of Utah, we will be referring to Utah’s sales and use tax laws. If you are doing business outside of Utah, please refer to your state tax entity for specific information.

So when do you have to charge sales tax?

There are a lot of different transactions that require you to charge a sales tax. To see if the type of transactions your business generates is taxable, check out the guide from the Utah State Tax Commission at http://tax.utah.gov/forms/pubs/pub-25.pdf

In general, some of the transactions that Utah requires sales tax on are:

· Retail sales or purchases of tangible personal property within Utah.
o i.e. selling a stereo
· Rentals and leases of tangible personal property
o i.e. the lease of a car
· Labor to repair or maintain tangible personal property which includes maintenance agreements.
o i.e. maintaining bicyces.
· Labor to attach tangible personal property to other tangible personal property.
o i.e. paying a company to attached your stereo to the hood of your car. Don’t ask me why you would ever do this.

Some items that are not taxable are:

· The sale of real property (land, homes, etc.)
o If you are a contractor and you are building a home, then Utah considers you as the user of the materials and you will pay taxes on the materials to build the home. However, the sale of the home to a homebuyer is not taxed.
o Installation charges for permanently installing tangible personal property to real property.
§ i.e. when you hire someone to install an A/C on your home, the purchase price of the A/C and the fee to install it are both no taxable. The State of Utah sees this as though you originally bought the A/C with the home and therefore it is part of the real property.
· Services that are not related to tangible personal property.
o i.e. accountants. Dashboard Accountants maintains the accounting records for small businesses. Those books are not tangible, so you don’t pay sales tax.

Remember, there are a lot of rules here. We have only covered a few today. The next post is going to be on figuring out what rate you are supposed to apply to your sales. We will be talking about a lot of things. For example, does your business operate out of one location? Multiple locations? Does your business not have a specific location? If so, what tax do you charge? These questions will be answered in good time.

Good luck and if you have any questions, let us hear from you. Happy taxing.