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Texas Sales and Use Tax

post #1 of 35
9/10/11 at 3:35pm
Thread Starter 
Is there any reason I should NOT apply for a sales and use tax permit?

Since the cottage food bill passed I'm trying to start a home business. I got my business name registered. I know that I need the sales tax permit to buy wholesale. I'm a little confused about filing taxes though. If I get the permit, I know I have to file taxes based on what I buy and sell. But since baked goods aren't taxable, do I only pay taxes on supplies that I keep and use like pans or decorating tips? And is this different from the use tax?

Can someone break it down for me? Should I get a permit to buy wholesale, or should I forgo the permit and just buy at regular stores so I pay tax on taxable items and then don't have to file those separately?
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post #2 of 35
9/10/11 at 7:11pm
If your products are not taxable, you would not legally qualify for a sales tax exemption -- someone has to pay the sales tax. You shouldn't need a sales tax permit to buy wholesale, your business license should be enough.
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post #3 of 35
9/10/11 at 7:20pm
You will be subject to use tax. (Does Every state have it? Jason, are you out there?) Be careful. States are finding this to be a lucrative collection with penalties, as many businesses ignore it.

Use tax is collected on all of your receipts where you don't pay your state sales tax on equipment, supplies, etc. You get a credit for out-of-state taxes paid, but for all of those products that you think you beat the tax system... no, you didn't.

For example, if you buy a $4000.00 oven out-of-state and they don't charge you sales tax, you owe your state $240.00 based on a 6% rate. Also, not filing a use tax return is a good way to automatically get an audit, as we all owe this.

Edit: I gave the example of an oven, but an auditor will go through all of your receipts, like those cute little cutters you bought. We all know that these receipts can really add up over a year, or many years if you are audited.
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post #4 of 35
9/10/11 at 8:12pm
Every state with a sales tax has a use tax as well, but for most businesses the vast majority of their purchases will already be subject to sales tax, so no use tax would be owed on those transactions.

If you have a sales tax exemption (because you collect sales tax on finished products) then you are also exempt from use tax for the ingredients that make up those products. It's a moot point for TX though, since to-go baked goods are not taxed so there would be no sales tax exemption for the baker (when buying ingredients).
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post #5 of 35
9/10/11 at 10:17pm
Thanks Jason. But you are in CA where most of your supplies are readily available. I have stacks of receipts from internet purchases that have no out-of-state sales tax applied. All of these items, except ingredients are subject to use tax. And I know that decorators with multitudes of cutters and other decorating equipment are sure to have a pile of receipts also. I don't know the penalties, especially for multiple years, but I'm sure they aren't pretty. Didn't CA start this whole use tax collection craze when they got into financial trouble? It was always there, but not aggressively enforced. All states are looking for revenue sources and this has been a good one.
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post #6 of 35
9/10/11 at 11:17pm
Quote:
Originally Posted by jason_kraft

Every state with a sales tax has a use tax as well, but for most businesses the vast majority of their purchases will already be subject to sales tax, so no use tax would be owed on those transactions.



NOT TRUE.

Your comment assumes the OP simply buys ingredients, supplies, and equipment only from vendors located within the OP's taxing authority. Please re-read my answers to your questions to me on this same subject in a previous thread.

It's not the best idea to make sweeping generalizations about potentially serious issues taxes. Especially when you are not an authority on the subject.

There are very complex and little-known issues involved, such as interstate sales/use tax reciprocity, additional county- or municipality-imposed taxes, vendor nexus, and business classification models.
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post #7 of 35
9/10/11 at 11:27pm
this-mama-rocks, I am well aware as well as I'm sure Jason knows the law. But the majority of CC members have probably never even heard of use tax, so simplicity is key. I addressed the interstate transactions and Jason used the words, "most" and "vast majority". It sounds llike you are just picking based on a disagreement in another thread.
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post #8 of 35
9/11/11 at 5:17am
Uh, I know this-mama-rocks, and she used to be a tax auditor for a well-known tax authority, so yeah, I listen to what she has to say.

I pay sales tax but Virginia also has a personal property tax too, and they don't care if you've paid sales tax on something or not. They still charge you for the personal use part of your equipment etc. They also charge you sales tax at the end of the year if you didn't pay it on out-of-state purchases. I fill out that stinking part of my tax return every year, booooo.

I also have a few wholesale accounts, and they all require a sales tax ID plus a business license. If you don't have both, they won't sell to you.

For the OP...For something like this I'd check with your county's sales tax registration office or wherever it is that you'd go to get the number and ask what they think you should do. They'll have much better (and more accurate) answers than what you can get on this forum. The laws are so different everywhere, you need to get the real deal from the source.
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post #9 of 35
9/11/11 at 7:10am
Oh my goodness, please contact the Comptroller directly.

http://www.window.state.tx.us/contact.html
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post #10 of 35
9/11/11 at 8:38am
Quote:
Originally Posted by this-mama-rocks

Quote:
Originally Posted by jason_kraft

Every state with a sales tax has a use tax as well, but for most businesses the vast majority of their purchases will already be subject to sales tax, so no use tax would be owed on those transactions.



NOT TRUE.



What's not true? For in-state purchases (which will be most purchases for most people, with the exception of online purchases) no use tax is owed, since sales tax has already been collected. You absolutely need to keep track of your online and out of state purchases though, so you can pay the necessary use tax on them, and I agree that business in more remote areas that rely more on online/out-of-state purchases will have more use tax to pay.

Unless I'm misunderstanding how use tax works?
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post #11 of 35
9/11/11 at 10:46am
costumeczar, I was not disputing her information. And Jason did not do what she said. But general information that would be helpful to the CC members that would prompt them to seek advice was all we were trying to do. One of my majors was accounting, but I don't do my own taxes. I leave that to people who earn their living in that field.
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post #12 of 35
9/11/11 at 11:32am
Quote:
Originally Posted by scp1127

this-mama-rocks, I am well aware as well as I'm sure Jason knows the law. But the majority of CC members have probably never even heard of use tax, so simplicity is key. I addressed the interstate transactions and Jason used the words, "most" and "vast majority". It sounds llike you are just picking based on a disagreement in another thread.



There was no disagreement on the other thread. Jason had asked for clarification and explanation on sales/use tax situations, and I freely answered all questions.

"Simplicity may be key", but if a CC member makes the "vast majority" of purchases online, or pays a non-reciprocity neighboring state's sales tax on "most" purchases, that CC member may be in for a very rude awakening come audit time. In those instances, Jason, additional use tax WOULD be due on those transactions.

Answering TX tax issues, when the answering party is a CA-based business that does not deal in a lot of taxable interstate commerce, is not a good idea. Many cc members would read a single post, take it as gospel, and do no further research on the subject.

BTW, spc, I DID earn my living in that field for over a decade. I was a state sales/use tax auditor for almost 9 years, then a multistate sales and use tax consultant for KPMG Peat Marwick.
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post #13 of 35
9/11/11 at 11:42am
Quote:
Originally Posted by this-mama-rocks

"Simplicity may be key", but if a CC member makes the "vast majority" of purchases online, or pays a non-reciprocity neighboring state's sales tax on "most" purchases, that CC member may be in for a very rude awakening come audit time.


Correct, but my post indicated that most bakery businesses tend to purchase most of their ingredients in-state, which is the opposite of your statement.

Those in-state purchases are typically not subject to use tax (excepting situations with out-of-county purchases at different rates). I then clarified in a followup post that businesses who make more online/out-of-state purchases would end up owing more use tax.

I'm still trying to figure out what about my post was "NOT TRUE".

The topic of use tax (while an important one) is somewhat orthogonal to the topic of this thread, namely sales tax permits and exemptions. If OP has a sales tax exemption, qualified purchases would be exempt from both sales and use tax. If not then OP would owe sales tax or use tax on said purchases.

I'm sure the administration and enforcement of use taxes is quite complex, but the concept is pretty simple...if you buy taxable stuff in your home district, you pay sales tax. Otherwise you pay use tax and receive a refund for any sales tax you've paid.
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post #14 of 35
9/11/11 at 11:55am
And the next sentence reads "In those instances, Jason, additional use tax WOULD be due on those transactions.".

Which means "no use tax would be owed on those transactions" is not true.
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post #15 of 35
9/11/11 at 11:57am
Quote:
Originally Posted by this-mama-rocks

And the next sentence reads "In those instances, Jason, additional use tax WOULD be due on those transactions.".

Which means "no use tax would be owed on those transactions" is not true.


So for in-state purchases where you've paid sales tax, additional use tax would be due?

"Those transactions" = those purchases already subject to sales tax (i.e. in-state), I wasn't referring to ALL purchases made by a business. This is based on the earlier part of the sentence: "purchases will already be subject to sales tax".
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