Whether operating as an online or in-store retailer, businesses have to pay close attention to the sales tax, which will affect their profit and the costs charged to their customers. What rate of sales tax is applied varies by state. Trying to comprehend sales tax can be confusing for business owners, as well as the customer, but it is an essential and required part of owning a company.
According to the U.S. Small Business Administration, sales tax is, “A retail point-of-purchase tax imposed by state and local governments that is paid by the purchaser for goods and services. As a small business owner, you are required to assess sales tax, collect it and pass it on to the appropriate authorities within the prescribed time.”
One component of sales tax to understand is tax exemption. This refers to a reduced taxable income from monetary exemption of certain goods.
Tax exemption can do a number of things:
- Provide complete relief from taxes
- Reduction of taxes
- Tax only a portion of items
To reap the benefits of tax exemption, you must have an exemption certificate updated annually. For a business-to-business transaction, you can be tax exempt. Within the wholesale industry, for example, tax exemption is allowed when the purchaser is buying something for resale.
Even though the purchase transaction is exempt from sales tax, the buyer is still required to provide the seller an exemption certificate.
In turn, the seller has to be prepared to show that there was a request for the certificate in order to justify there was no need for collecting sales tax from the customer. The seller must keep the tax exemption on file. These requirements have been set forth under tax law.
Having an updated tax exemption certificate each year is critical to keeping your business to business relationships going. Failure to have an updated tax exemption certificate, you could risk severe penalties as the purchaser and also for the seller.
If you are ever not sure of how to handle tax exemption, certificates, and general sales tax, it is always wise to contact your local tax branch or refer to the IRS.
Our staff at Midwest Retail Services makes it a goal to meet your B2B expectations, each and every time we answer the phone, provide a quote, do an installation or simply assist someone in need of general information.
Find out more about how Midwest Retail Services can help your retail display program grow by calling 800-576-7577 or send us an email at firstname.lastname@example.org.