Aren't home bakers supposed to charge tax? - Page 2

If your state exempts you from sales tax when customers buy your products, it's very highly likely that you are liable for use tax.

Your state government wouldn't be able to track down all the brides who bought your wedding cakes to get sales tax from them, but they are able to track down YOU, the business entity, to get the use tax from you.

Usually, it's not paying the employment taxes that will get a business shut down. But yes, not remitting any taxes that your business is liable for, has the potential to kill a business. We had the authority to seize the assets of a business, and sell them at auction, to satisfy the back taxes/penalties/interest that resulted from an audit.

I forgot to mention, if you are liable for use tax, you also have to accrue and pay any local sales/use taxes that an in-state vendor didn't charge you.

For example:

You are located in an area with state, county, and local jurisdiction sales/use taxes. You buy equipment from a vendor who is located in your state. The vendor is located in an area with state sales/use taxes, but no county or local jurisdiction sales/use taxes. You will need to accrue and pay the county and local jurisdiction sales/use taxes on the equipment you purchased from that vendor.

I have to say that it's very refreshing to get answers form someone who knows what they're talking about, and who has actual experience in the field, instead of just a lot of "I heard this from my neighbor's cousin who used to date a guy who worked at the IRS office doing computer repairs"

That's the part I understand...but I've never heard of a business being held liable for use tax owed by its customers. The state has already collected the sales tax from the business (if the business sells tax-exempt products) via the supplies the business has purchased, since if you are not required to collect sales tax from your customers you are not eligible for a resale license to buy supplies tax-free.

If a customer lives in an area that charges sales tax on products that are exempt in the business's area, it should be the customer's responsibility to pay the use tax they owe.

"If your state exempts you from sales tax when customers buy your products, it's very highly likely that you are liable for use tax.

Your state government wouldn't be able to track down all the brides who bought your wedding cakes to get sales tax from them, but they are able to track down YOU, the business entity, to get the use tax from you. "
You (meaning "your business") sell a cake, and in your state, you do NOT have to charge sales tax when you sell the cake to the bride. Instead, it's highly likely that you will be liable for Use Tax on everything that was Used to go into that cake. If your state has ruled that yes, you are liable for the use tax, they will bill YOU for the use tax due on all the stuff you used to go into the cake. In this example, the tax burden is on YOU, the business, not the bride.

"but I've never heard of a business being held liable for use tax owed by its customers"
You (meaning "your business") sell a cake, and in your state, you DO have to charge sales tax when you sell the cake to the bride. You (your business) are located in Small Area, with a 4% state sales tax only; no local taxes are in Small Area. You charge the 4% state sales tax on the bride's invoice. You deliver the cake to the Big City wedding location that has 2% county and 1.5% city sales taxes. You (the business) are liable for the additional 3.5% sales taxes that you did not charge the bride. Tax Auditor will NOT try to track down your bride and bill her for the 3.5% sales tax on the cake. The auditor will bill YOU for it, and you can try to get the $$$$ from the bride (have fun, she'll love you for that).

"If a customer lives in an area that charges sales tax on products that are exempt in the business's area, it should be the customer's responsibility to pay the use tax they owe. "
No, that's not the scenairo in my example. You (meaning "your business") are now located in Big City (that has 4% state, 2% county, and 1.5% city sales/use tax rates). You buy a thingamajig for your business, and it will be taxable. You order the thingamajig from a vendor who's back in Small Area (4% state sales rate). Vendor charges you the 4% tax and ships the thingamajig. Tax Auditor will bill YOU for the 3.5% use tax on the thingamajig.

I hope I was able to make things a little clearer. It can be difficult to explain, especially when you're not face-to-face.

Except if I do not have to collect sales tax from my customers, I do have to pay sales tax to my suppliers. Are you saying I would have to pay both sales tax and use tax for the ingredients?



Interesting, thanks for the clarification. It sounds like it's important for businesses to know the tax structure in other counties/cities they deliver to and collect the appropriate sales tax based on the delivery address.



In that example my hypothetical business is the customer and is buying the thingamajig from a vendor. Since my business is the customer in that case, I am responsible for paying the use tax, not the vendor.

That seems to be at odds with the earlier example of a bride buying a wedding cake from my hypothetical business. If the thingamajig vendor is not liable for the use tax in our earlier transaction, I'm not sure why my business would be liable for the use tax in the wedding cake example.

How is the use tax computed?

The amount of use tax owed is equal to the amount of sales tax you would have paid on an item if you had purchased it in your city (including city, county, and state taxes) minus any sales tax you actually paid to your city/county/state for the item. If you paid sales tax to another city/county/state, I believe the seller should credit that back to you, but I'm not 100% clear on that.

In most cases, buying items locally results in no use tax owed, since you've already paid the equivalent sales tax. But let's say the total tax rate in your area is 10%, you buy a $200 item on Amazon.com, and Amazon does not charge you sales tax. You now owe your state $20 in use taxes, which you must declare on your state income tax return. You as the customer are responsible for declaring your use taxes owed.

The link below has more info (some specific to NY, but you should get the idea):
http://www.tax.state.ny.us/pit/income_tax/sales_and_use_tax_on_my_income_tax_return.htm

Okay, so when I file my income taxes every year I declare the things that I've purchased online and pay the sales tax to them if that wasn't charged by the seller. I'm good with that (unfortunately I am honest and do declare and pay all that stuff, hahaha!)

With my previous example of the city or Richmond charging 10% on restaurants, though, should I check to see if the tax rate on wedding cakes in the city is also 10%? I charge 5% across the board, but if I'm understanding your example, I would owe an extra 5% if the delivery is within the city and not in the county? Uh oh.

What if the person ordering the cake lives in the county and files taxes there, but the delivery is in the city? Or what if they live in the city and pick the cake up (which wouldn't happen, I'm just pondering)

A friend sent this to me when we had a recent article about the "use tax" in AL. It's funny until you realize how true it is

The Tax Poem

Tax his land,
Tax his bed,
Tax the table At which he's fed.

Tax his tractor,
Tax his mule,
Teach him taxes Are the rule.

Tax his work,
Tax his pay,
He works for peanuts Anyway!

Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.

Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.

Tax his cigars,
Tax his beers,
If he cries
Tax his tears.

Tax his car,
Tax his gas,
Find other ways
To tax his ass.

Tax all he has
Then let him know
That you won't be done
Till he has no dough.

When he screams and hollers;
Then tax him some more,
Tax him till He's good and sore.

Then tax his coffin,
Tax his grave,
Tax the sod in
Which he's laid.

Put these words
Upon his tomb,
'Taxes drove me
to my doom...'

When he's gone,
Do not relax,
Its time to apply
The inheritance tax.

This is such a complicated thing that varies from state to state. And it can get you shut down in a heartbeat if you don't pay. I have seen establishments where I live experience this.

While there is great information here, you really should call your own local and state tax offices. Or talk to a tax lawyer in your area. If you are business you should have a lawyer. Most if not all lawyers will talk to you for free to find out what your business is and what they need to do legally for you. After that you are charged for the work they do when you call them. And personally after this last business we set up it is worth every penny.

If you are doing it wrong, your defense of I asked on a cake site will not hold. Go straight to the source for the best and up to date information.

Wow, wish our lawyer worked like that! LOL

I think she charges us for the initial hand shake!

AND all of our phone calls are rounded up by a 15 minute marker!! UGH!

Then I would find a new lawyer! They are a dime a dozen right now.

Me, making lawyer jokes when my middle son is attending law school. Shame on me.

Sales Tax and Use tax are simultaneous taxes. If you buy a taxable thingamajig (or taxable ingredients) and the vendor doesn't charge you sales tax on the transaction, you accrue and remit use tax.

In the wedding cake example, you should be charging the bride the appropriate sales tax. It's not enforcable to collect use tax from individuals, but it is enforcable to collect the sales tax from the seller. So in that instance, yes, if the wedding cake sale is taxable in your state, they would hold you (the cake seller) liable for the tax.

Yep, costume. The sales tax is due based on the location of "possession". So, if bride lives in Small Area, but you deliver the cake to her (she takes "possession" of the cake) in Big City, Big City's tax rates apply.

The use tax is due based on the location of "possession or of first use". So, in addition to the Small Area vendor and your business in Big City scenario stated above, get this!

If vendor is in Big City and your business is in Small Area, and you go pick up the thingamajig from Big City, you owe 7.5% tax (4% state, 2% county, 1.5% city). Why? Because you "took possession" of thingamajig in Big City.

If vendor is in Big City and your business is in Small Area, and you have thingamajig delivered to you in Small Area, you owe 4% tax. Why? Because you "took possession and first used" the thingamajig in Small Area.

If anyone chooses to talk to a professional about sales/use taxes, either consult with a tax lawyer or contact your Department of Revenue (or Dept of Taxation). Sometimes the REvenue Departments will hold sales/use tax workshops for small businesses. I would NOT talk to you accountant/CPS, because they only know how to fill out the sales/use tax forms, not how it all works. For years, I had people scream at me "why didn't my CPS tell me any of this??!!!!!!" when I handed them the audit bill. Good times, good times.

Booooo. Now I need to go see how they tax wedding cakes in the City of Richmond. They have that super-special extra tax on restaurants, but I don't know if it applies to delivered cakes too. I doubt it but you never know.