My husband and I are both retired and want to sell natural handmade soap from an online distributor. We researched various distributors and found one whose products appeared to stand by it's word (free shipping for purchase over a $100.00). We ordered samples and liked the products.
Here's my question: The flea market requires only daily booth rental fee and no tax ID. The soap distributor doesn't require a tax ID either. The customer doesn't pay taxes on flea market purchases. So, who pays the taxes and do we need a Tax ID?
By Trying2stayafloat from Newark, DE
I have to ask, why doesn't the customer pay taxes on flea market purchases?
You should get your hands on a copy of Minding Her Own Business:
The end-user is responsible for paying taxes.
If I buy my supplies tax-free (with my state issued business license), I have to keep receipts and records of this. I make my product (either jewelry or cards), and charge appropriate sales tax to my customers. I then remit the sales tax to the state on a monthly basis. I don't know if it works this way in all states, but in Oklahoma we have state, county, and city tax. It is based on the point of delivery. The state issues a book with the current tax rates, or it can be found online. If I make jewelry for a custom order here in central Oklahoma, but deliver it to someone in SW Oklahoma, I have to charge tax based on where the customer receives the jewelry. It might be different in other states.
Contact your state tax commission (you could check their website to get started), and they should be able to help you. We attended two free seminars about running a business and taxes. We went the second time, just to make sure (it's a lot to take in!). When you contact the tax commission, you can give them the scenario you gave us (flea market setting, how do you go about taxes?). I'm thinking if people are resistant to paying taxes at a flea market, even though technically they're supposed to, mark up your items however many percent for tax and just send it on to the tax commission. It's pretty easy for us to pay monthly through their website.
Remember I said that the end-user is responsible for taxes. If you have to buy tables or trash bags, YOU are the end-user, and you DO pay sales tax. The book I mentioned earlier will go into all of that (expenses vs. inventory). You want to get this right, in case you're ever audited.
I know a lot of people don't bother doing it correctly. I was told by someone teaching a jewelry class that if you take a trip, buy one string of beads for your business, you can write off the entire trip as a business expense. Ummmm . . . no. That's a quick way to get in trouble (if you get caught!). But people try to bend the rules all the time. I'm glad you are trying to do the right thing. We're extra careful, to make sure everything we're doing is proper. Please look into that book, and contact your tax commission. Those should be of great help to you! Best of luck with your new business, and I wish you much success!
P.S. If you ever decide to start selling online, you are responsible for collecting taxes for items delivered within your state. (Remember - it's based on the point of delivery.) You're in Delaware, if I ordered something and you mailed it to Oklahoma, you wouldn't have to collect sales tax. *I* would be responsible for paying tax. This is done when filing income taxes under "use tax."
A lot of people think that ordering online means tax-free. Nope. If you did a lot of business in another state (like everyone in Oklahoma loves your soap and orders all the time), the state of Oklahoma might approach you, wanting you to collect Oklahoma state tax and forward it to them (nexus). You could decline, and you still would not be responsible for charging sales tax. This is usually for bigger businesses, like Yankee Candle or Amazon. Again, your state tax commission can give you information on this.
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