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Sales Tax Question (by Dr. Jerry Osteryoung)

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Dr. Jerry Osteryoung

Executive Director
of the
Jim Moran Institute for
 Global Entrepreneurship
at Florida State University


Sales Tax Question

 

Q- I am going to start a business in the retail market with a couple of part-time employees (hopefully moving them to full time).  How do I go about collecting sales taxes and when do I have to pay this?  Should I set up a separate savings account to ensure that I do not spend this money?  What do I do if another business wants to buy my products but does not want to pay the tax?  Thanks for your help on this as I am very confused with this tax.

With some minor exceptions, Florida, and most other states, requires that businesses collect sales tax on each retail item sold.  Here, in the state of Florida, the basic sales tax rate is 6%.  However, as you have probably noticed, the tax rate can vary from county to county.  This is because each county can levy a discretionary sales surtax which is added on to the state’s basic rate.  Such is the case in Leon County where the combined sales tax rate is 7.5%.  For a list of rates in each of Florida’s counties, visit http://taxlaw.state.fl.us/sut_out.asp?r=Tax+Rate+by+County&file=sut_trc.ask.

When opening a business that will collect sales tax, the State of Florida requires that you register with the Department of Revenue.  Many counties will not give you a business license until you have done so.  Register on-line at www.myflorida.com/dor or, if you do not have access to the internet, request Form DR-1 from the Department of Revenue’s service center.

Once your registration has been approved, you will get two documents from the State. The first is a Certificate of Registration (Form DR-11).  This document confirms that your business is officially registered.  Secondly, you will receive an Annual Resale Certificate (Form DR-13).  This document allows you to purchase, on a tax-exempt basis, goods that you intend to resell.  In cases when you are purchasing tax-free or wholesale goods, you will have to provide your vendor a copy of the Annual Resale Certificate.

The Department of Revenue will designate your business’ filing schedule, however, you can request an alternate schedule if desired.  It is advisable to follow a monthly filing schedule as it is easy to forget to file when done less frequently.  Furthermore, filing more often means that less cash is needed when making payments.

Whether you have collected payment on goods sold or not, sales tax payments must be made without exception.  On a monthly schedule, all tax revenues collected are due no later than the 20th of the following month.  Beware of late payments as they result in penalties and additional interest charges.  Submit payment by mail using Form DR-15 or DR-15EZ or opt to file on-line.  In light of a couple of obvious benefits, many are choosing to file their sales tax returns on-line.  As on-line filing is quicker than filing by mail, businesses are able to postpone payment until the last possible date without danger of being late.  Furthermore, with an on-line confirmation number, there is never a question as to whether or not the return was postmarked on time.

It is important to remember that, while your business is collecting sales tax revenue, these funds belong to the government.  They do not belong to your business; they can not even be used by your business.  In light of this, it is a very good idea for new businesses to keep these funds in a separate account.  Following this method ensures that the funds are there when it comes time to file.  Accounting software and Point of Sale systems offer assistance as most can be used to generate sales tax reports.  These reports make it very easy to determine the month’s liability and to transfer money into the designated account on a weekly or even daily basis.

It is also important to remember that the tax is a sales and use tax.  This means that you will owe taxes on any item used by your business.  Supposing that you use your Annual Resale Certificate to purchase equipment or inventory tax-free, taxes will be due on the portion that is used in your business.
Similarly, in cases when a business presents its current Annual Resale Certificate, you are not required to collect sales tax.  However, their purchase must be related to something that they will resell.  For example, an auto dealer can not use their Resale Certificate to avoid paying taxes on office products.  In instances like these when your business makes a tax-exempt sale, it is a good idea to keep a copy of the business’ Resale Certificate on file.  That way, the document is available in case the Department of Revenue requests it.  In fact, for safety’s sake, businesses should keep records of all its sales and purchases for at least three years.

As daunting as it seems, try not to let the bureaucracy overwhelm you.  Dealing with sales tax is pretty easy once you get used to it.  If you think you might need further guidance on how to comply with the law, you may want to consult the Department of Revenue’s “Sales and Use Tax Guide for Business Owners.” It is available online at http://www.myflorida.com/dor/taxes/sales_tax.html.


Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University.  He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship.  He can be reached by e-mail at jostery@comcast.net or by phone at 850-644-3372.


This article originally published on September 28, 2006.

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