When you think of “sales tax,” you probably just think of it as a set number added to your bill when you complete a transaction. Since you are used to being taxed on your purchases, you may not think too much about it.
Sales tax is actually much more complex than you think it may be and when it comes to making certain purchases, sales tax is even more complicated. Both consumers and businesses need to know about sales tax and it helps to have a general idea about it as you will then understand the additional charges tacked on to each transaction.
While it helps to know about sales tax, there are many misconceptions that float around about it and being misinformed can actually have a negative effect on you and your pocketbook. Below, we will go over some of the top misconceptions about sales tax to help you become better informed.
Sales Tax Doesn’t Apply to Internet Sales
When you make a purchase online, you may think that you do not have to pay sales tax on the item. Since the product is not located in your state and is not in a physical store, it is easy to think you can get around paying taxes on it, but unfortunately, it is not that easy.
In fact, you are usually charged a sales tax simply based on where you live. What happens is, if the retailer you purchase from has Nexus in the state you live in, you are charged a sales tax. Nexus is when a retailer has a physical presence in a state, meaning that they have a large amount of their inventory in that state.
If the retailer sells out of, for instance, Florida, then they would charge sales tax since Florida collects sales tax from its residents.
Sales Tax is a Simple Seven Percent
It is important to understand that sales tax is not just a simple set number that is the same for every state. In fact, some states collect six and a half percent sales tax, some seven, and some more than that.
It is essential that you know how much your state collects as a consumer and a small business. This is because you will be able to better estimate how much you will pay for a product as a customer and you will be able to charge customers correctly as a business.
If you are a business and you charge the wrong amount in sales tax, you will find that you have to end up paying it and you may even face additional penalties.
Car Purchases Are Tax-Free
If you are looking to purchase a car, you may think that there is no sales tax on it. In fact, if you purchase a vehicle in a state that does collect sales tax, you must pay the sales tax.
If you happen to purchase a vehicle that is in a sales tax-free state, you will still be required to pay taxes on the vehicle when you register it in your home state. The tax you pay is called a use tax and is applied and due when you register the vehicle.
Nonprofits Do Not Pay Sales Tax
Nonprofits are actually required to pay sales tax on items that they purchase and when they resell these items, they are required to collect the sales tax as well. It is important that you understand what being a non-profit business is so that you can collect sales tax accordingly. The nonprofit exemption typically applies to federal income taxes anyway.
If you are unsure of whether or not you need to pay sales tax, it is important that you speak with a professional tax agent. He or she will be able to tell you whether or not you have Nexus in a state and also whether you paid the right amount of taxes on one of your purchases.
One thing that consumers must understand is that the sales tax you pay is based on the state that you make the purchase in. For instance, if you are shopping in Florida, you will pay the sales tax that Florida charges even if you live in Michigan or California.
One thing to keep in mind is that it is wise to seek professional help for your taxes when you do not understand how to file them properly. Seeking out help will prevent you from making mistakes and paying additional fees or penalties.
Stephen Elmore