Cross-posted from the Vermillion Area Farmers Market blog.
For those on the twice-yearly payment schedule, South Dakota state sales tax forms are starting to arrive. While I’m not a licensed tax preparer, and you should always get professional advice, you might want to take a look at how you’re filling out your form.
I’ve noticed that a lot of farmers market vendors sell at a tax-included price to avoid carrying the mounds of coins needed to give change on cash sales. But I’ve also gotten the impression that some of those vendors then tally up their six-month tax-included sales totals and then calculate the sales tax payment they owe the state on top of that.
If you sell at a tax-included price, you should be subtracting that tax from your total sales figures to get your gross sales total for your tax return. If you don’t, you’re paying tax on the tax you already collected as part of your price.
For instance, if I sell an item for the tax-included price of four dollars, my actual sale price is only $3.77. If I make a market sales total (tax-included) of $1000, I’ve actually only made sales of $943.40. The rest is the included tax I collected as part of my prices.
Paying combined six percent city and state tax on 943.40 is $56.60. Paying 6% tax on my already tax-included sales of $1000 is $60. While the $3.40 difference isn’t much, it does add up with greater sales, and frankly, it’s just dumb to pay tax on tax.
A very simple way to calculate the pre-tax sales figure from a tax-included total is to divide the tax-included total by one-plus-your-tax-rate. Here in Vermillion (where we’re 6% combined state and city) that’s tax-included total divided by 1.06.
Example: $1000 [tax-included sales total]/1.06 [one plus my tax rate]=$943.40 [gross sales total]
Another common mistake that vendors make is to fail to keep track of sales made in different cities/towns. I sold in both Elk Point and Vermillion this year, so I have two lines in my municipal tax category for those two markets.
While the tax rate is the same in both places (2% on top of the state 4% take), filling out the form correctly ensures those tax dollars go to the municipality where they belong. You’re not supposed to just pay the sales tax rate based on the town you live in! You can find the different municipality rates on the SD Dept. of Revenue site.
Another issue–which isn’t much of one for many farmers market vendors in South Dakota yet–is the food stamp and WIC issue. You cannot charge sales tax on these types of purchases, so you need to keep those kinds of purchases separate in your daily receipts and end-of season accounting.
There’s a specific line on your tax form for non-taxable sales, and that’s where EBT/food stamp/WIC sales totals go.
And, of course, when you sell at a tax-included rate and you make an EBT sale during a market, you can use the same calculation given above for getting the non-taxed price: the cost of the item divided by one-plus-your tax rate. Again, just make sure to keep that sale separate in your receipts, so you don’t end up paying tax on it later.
And just to repeat my disclaimer here: I’m not a licensed tax preparer, and this isn’t any kind of real, professional advice. Heck, I’m not even particularly skilled at math. But I also don’t like to pay tax on tax.
Call the State Dept. of Revenue or your own tax expert for help and assistance. And quit paying sales tax on your sales tax.