Caesar Wants to Tax Your Sales--Part II

You've registered for an Indiana license, received your Registered Retail Merchant Certificate, and given the certificate a place of honor on your bulletin board (or tossed it in your business records' graveyard).

Now you're wondering if you should tuck a calculator and several rolls of coins into the box of books you keep in your trunk. Whether you need a calculator depends on how easily you can do math in your head, but the rolls of coins may depend on how you price your books.

For sales tax purposes, there are two ways to price your books. First, you can do it the way most retail stores do and add the tax onto the sales price. The formula for the amount you collect from the customer is:

taxable sales (1 + sales tax rate) = total charge

Since Indiana's sales tax rate is 7%, if you sell one book priced at $8, you would collect $8.56 [$8 X 1.07 = $8.56]. If you sell a customer two books and one is priced at $8 and the other at $5, you would collect $13.91 [$13 X 1.07 = $13.91]. So yes, those rolls of coins will come in handy for making change. But you do get to keep the entire $8 (or $13).

I don't want to carry coins around with me, so I use the second method.

How many of you have seen signs in store windows advertising that Monday (or Tuesday, or Wednesday) is "tax free"? They lie. It's really just a 7% off sale, because the state still gets its money. But I use this method because it's less hassle at the time of sale.

So how does it work? If I charge $8 as the sales price, that's all I collect. No rolls of coins, and less time spent figuring out how much the customer owes. If a customer buys one book priced at $8 and another priced at $5, the customer pays $13. Simple.

But there is a trade-off. The state still wants its 7%, so I don't get to keep the entire sales price. And the formula works backwards. When using this method, the sales price for tax purposes is $8 minus the tax due. Here is a formula for determining taxable sales.

total charge / (1 + sales tax rate) = taxable sales

That means my $8 book only brings me $7.48 [$8 / 1.07 = $7.48]. The state gets the remaining $.52.

Filing time!

Anyone who registers on or after January 1, 2010 must file sales tax returns electronically using INtax. People with existing licenses can also file online. Registering for INtax is easy, so I won't walk you through it. Just go to www.in.gov/dor/3963.htm and click on the "Get Started" link under "INtax," then follow the instructions.

A warning for anyone who sells in Illinois: calculating sales taxes there is more work than it is in Indiana. That's because each county and some cities can charge their own sales taxes. So although the state collects the local sales taxes when it collects its own share, the rate it collects depends on where you sold the books. This means that taxes for each location must be calculated separately. The formulas given above still work, though.

Confused yet?

Kathryn Page Camp