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Aren't home bakers supposed to charge tax?

post #1 of 43
Thread Starter 
I had two clients this week look at me in shock when I told them I charge tax. They claimed that home bakeries are not supposed to be charging tax. Uhm, I assume the other home bakers that they have talked too aren't licensed for them to say they don't charge this.

Im just doing what I was told. I have only been in business for going on 8 mos now. I was told that I have to charge tax on goods I sell as well as pay use tax, etc. Am I missing something here? Aren't we supposed to be charging tax as licensed businesses.
post #2 of 43
Depends on the state. In CA you do not have to collect sales tax on prepared food as long as it will not be consumed at the retailer's location, so if your business does not have seating for customers you do not need to collect sales tax at all in CA.

Use tax only comes into play when you purchase something from another state and thus do not pay sales tax. You still owe use tax based on the tax rate where you live, but this is rarely enforced.
post #3 of 43
Thread Starter 
I'm located in Raleigh, NC. Any others located here who do this?
post #4 of 43
Quote:
Originally Posted by Dreme

I had two clients this week look at me in shock when I told them I charge tax. They claimed that home bakeries are not supposed to be charging tax. Uhm, I assume the other home bakers that they have talked too aren't licensed for them to say they don't charge this.



I think that's a broad assumption. People will tell you what they want to tell you, that doesn't make it true.

Quote:
Originally Posted by Dreme

Im just doing what I was told. I have only been in business for going on 8 mos now. I was told that I have to charge tax on goods I sell as well as pay use tax, etc. Am I missing something here? Aren't we supposed to be charging tax as licensed businesses.



Where I'm at you do not have to collect sales tax if the product is consumed off site and the only time use tax applies is when sales tax was due but not collected by the vendor or seller. therefore a use tax of equal amount is due from the customer.
Our chronic flaw is partiality of judgement: we exaggerate the wrongs done to ourselves, and underestimate the wrongs we inflict on others - unknown
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Our chronic flaw is partiality of judgement: we exaggerate the wrongs done to ourselves, and underestimate the wrongs we inflict on others - unknown
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post #5 of 43
According to NC DOR Section 19-2 D, it looks like bakery items sold without utensils (i.e. wedding cakes) are exempt from sales tax but are subject to 2% local and use tax.

http://www.dornc.com/practitioner/sales/bulletins/section19.pdf
post #6 of 43
It depends on how you have set up your business.

If you consider yourself a "cake retailer" and charge sales tax on the final price of the cake:
* you do not have to pay use tax on things that go directly into the cake, like ingredients, food color, fondant, boards, etc.
* you do have to accure and pay the appropriate use tax on all things that are not a direct component of the sold cake, like equipment, printed marketing materials, or frosting bags.

If you consider yourself a "service provider" and do not charge sales tax on the final price of the cake:
* you have to accrue and pay the appropriate use tax on everything you purchase to conduct your business

Regardless of how you have set up your business, if you purchase anything taxable out-of-state, and the seller charges you sales tax for the state the seller is located, you have to accrue and pay the use tax based on where your business is located. You will need to attempt to get a credit from the seller for the other state's sales tax you were charged in error.

And, YES, this is enforced ALL THE TIME. I was a GA sales and use tax auditor for 8.5 years, then a multi-state sales and use tax consultant for 2 years. The likelihood of you getting audited may be small since you are home-based, but the auditors can be ruthless and take a sick glee in assessing someone a little tax and a lot of penalties and interest.
Just put on your Big Girl Panties and deal with it!
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Just put on your Big Girl Panties and deal with it!
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post #7 of 43
No sales tax on food and candy in PA and apparently bakery items fall into that category. So thankfully, I don't have to charge sales tax!
-Stacey
Truly Custom Cakery, LLC

Website: http://www.trulycustomcakery.com

Facebook: http://www.facebook.com/TrulyCustom
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-Stacey
Truly Custom Cakery, LLC

Website: http://www.trulycustomcakery.com

Facebook: http://www.facebook.com/TrulyCustom
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post #8 of 43
Quote:
Originally Posted by this-mama-rocks

And, YES, this is enforced ALL THE TIME. I was a GA sales and use tax auditor for 8.5 years, then a multi-state sales and use tax consultant for 2 years. The likelihood of you getting audited may be small since you are home-based, but the auditors can be ruthless and take a sick glee in assessing someone a little tax and a lot of penalties and interest.


In your experience, how closely do state auditors look for use tax violations? Do they actually go through individual receipts for business expenses and look for out-of-state vendors?
post #9 of 43
In OH we have to charge for delivery but not on the actual food product. You really should check into the laws for your state before charging or not charging sales tax again. thumbs_up.gif
Tact is telling someone where to go so nicely they can't wait to take the trip!
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Tact is telling someone where to go so nicely they can't wait to take the trip!
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post #10 of 43
Quote:
Originally Posted by jasonkraft

Quote:
Originally Posted by this-mama-rocks

And, YES, this is enforced ALL THE TIME. I was a GA sales and use tax auditor for 8.5 years, then a multi-state sales and use tax consultant for 2 years. The likelihood of you getting audited may be small since you are home-based, but the auditors can be ruthless and take a sick glee in assessing someone a little tax and a lot of penalties and interest.


In your experience, how closely do state auditors look for use tax violations? Do they actually go through individual receipts for business expenses and look for out-of-state vendors?



Yes. A company might have said "oh, here's the report totals we use for filing purposes", but we always wanted to see the backup for the reports - and then we went through stacks and stacks (or boxes and boxes) of individual invoices.
Just put on your Big Girl Panties and deal with it!
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Just put on your Big Girl Panties and deal with it!
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post #11 of 43
Even if your state does not require you to charge sales tax on the final product, rest assured you will be liable for the use tax on all purchases. A cash-strapped state government is NOT going to let the entire business model be exempt from the sales/use tax.
Just put on your Big Girl Panties and deal with it!
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Just put on your Big Girl Panties and deal with it!
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post #12 of 43
FYI.. In CA they are starting to tighten up on use tax. They audit a supplier and then they send notices to individual business to find out if they paid sales tax or if they legitimately are wholesale buyers. They claim they are going to clamp down on nonbusiness use tax..not sure how they can afford to do that.
Lisa

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Lisa

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post #13 of 43
In VA bakery/grocery store cakes are considered taxable at the prepared food rate, because it's a prepared food that's meant to be eaten off-premises, so I collect and report the 5% sales that that applies to that category of food. The raw ingredients category is only taxed at 4% (I think) so if I was selling that then I'd charge 4%. In the city of Richmond they have to charge 10% on catered food because that's a special rate that they put into place for restaurants, and they lump caterers into that category (or so I hear from the caterers I know from the city).

I do what This-Mama-Rocks says and I have the sales tax exemption card that lets me not pay sales tax when I buy ingredients, etc. I have to make sure that I'm only using the exemption on things that would go into the cake, not magazines or things like books and pans.

All I know is that the state sends me a form every month saying that my sales tax is due, and I figure that I'd better pay it. Which reminds me, I need to file this month's taxes. Thanks for the reminder! icon_lol.gif
post #14 of 43
Quote:
Originally Posted by this-mama-rocks

Even if your state does not require you to charge sales tax on the final product, rest assured you will be liable for the use tax on all purchases. A cash-strapped state government is NOT going to let the entire business model be exempt from the sales/use tax.


Just to clarify...you owe use tax only when you buy stuff from a vendor that does not charge you sales tax. If your state exempts you from sales tax when customers buy your products, you are not liable for use tax or sales tax, although your customers may be liable for use tax if they live in an area where your products are not exempt from sales tax.

Is my understanding correct?
post #15 of 43
Really, you need to contact the tax office of your city/county/state, or have your tax professional advise you.

Taxes can be something that can shut down your business if you are not collecting them and/or paying them when you are supposed to. And since every city/county/state is different, you need someone who is doing business in your area to advise you.

In New York, I have heard of places being shut down and/or fined because they did or did not collect taxes. Be careful.
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