Sales Tax Requirements
- Sales taxes are levied by federal, state and local governments and collected by businesses at the point of sale.tax form image by yang xiaofeng from Fotolia.com
Sales taxes are assessed as a percentage of a product's sale price. Sales taxes do not apply to labor charges such as the hourly amount a mechanic or plumber will charge for services. Sales taxes, however, are due on all parts and materials the tradesman installs. Retail outlets charge a sales tax on the list price paid for each item. In some areas there are multiple sales taxes, one for the city or county and one for the state. The one federal sales tax is from purchasing gasoline or other petroleum fuel products. - Vendors and retails outlets are required to calculate sales taxes based on the final sales price. The sales tax is due on the actual amount a customer pays. Sales taxes are always rounded up to the nearest 1/100th of the dollar, or a cent or penny. Vendors who round up to the nearest nickel or dollar on sales taxes are overcharging customers.
When an area has multiple sales taxes, the calculation is based on the percentage of the total sales amount. A second sales tax to a city or county should not include the sales tax amount paid to the state government. As an example, a sale of $5.00 taxes at 5% to a state sales tax would be a total of $5.25. If the local government imposes an additional 2% sales tax then 10¢ are added to the final amount totaling $5.35. The final amount should not be 2% of $5.25 for a total of $5.36. - Every sales receipt presented to a customer should have a line item displaying the tax amount and the amount paid. Receipts showing “Total tax included” are not permitted. If an invoice is prepared manually the final total still must reveal the tax, the taxable amount and the tax due.
When receiving an invoice for services rendered the final total should indicate both taxable and non-taxable sales. If a car is serviced and the mechanic installs $100 worth of parts then the taxable amount is $100. The mechanic’s labor, however, at $100 an hour for one hour’s work is not taxable. If the total amount due is $200 at a 5% sales tax, the total tax is $5.00 for the parts, not an additional $5.00 for the labor. - Different government agencies have different methods for paying sales taxes. Some require filling out a form monthly of total sales, total taxable sales and total tax collected submitted with a payment. Others require a debit from a tax account on daily sales, depending on the size of the business. The federal government collects sales taxes on fuels based on total gallons delivered and total amount sold regardless of retail price. Both wholesalers and retail fuel outlets are required to report sales volumes directly to the Department of Transportation and Internal Revenue Service.
