The world of business and sales comes with one too many challenging tasks, one of which is related to taxes. The process of tracking taxes of goods can be demanding and confusing for many. What’s more, it often puts a significant strain on your staff, ultimately driving up your overall cost.
The method of product taxability becomes even more confusing and overwhelming when dealing with a business that operates in multiple locations or online. There are many ways sales tax affects a business, from draining your valuable resources to exposing you to high risks. In this article, we take you through four surprising ways sales taxes affect retailers.
1. Taxable Vs Non-Taxable Products
In the United States, certain products are exempts from taxation. Goods such as clothes, shoes, and even a pack of womens panties are taxable but every grocery item you pick is usually tax-free. If you shop where retailers use UPCs, there’s a high likelihood that your groceries are going to be taxed. As a taxpayer, this can be infuriating and unfair. The truth is that for many retailers, it’s challenging to keep track of every single item considered tax-free by the state.
2. Using Outdated Taxation Rules
Many retailers often use outdated tax rules which often impact their end-of-year sales calculations and the information they include on their tax return envelopes. Such outdated tax rules might include tax holidays that fell on a particular day the previous year but won’t be the same for the current year.
One of the ways states increase public expenditure is via the institution of tax holidays. Our love for tax-free shopping has made such holidays very popular, mainly with themes like hunting season. Generally, sales tax holidays don’t occur on the same days and dates every year. The lack of uniformity gives retailers the responsibility of tracking the new days to help them adjust the taxes of goods as and when they occur.
When retailers know the days of tax holidays and the products these holidays are meant for, they employ a UPC for easy taxation. For example, heels or pants are tax-free for a specific day, and they may not be on the next day. Keeping up with this can be tiring and overwhelming for many.
3. Categorizing Goods Wrongly
The categorization of products is another way sales tax can affect you as a retailer. Many retailers unknowingly categorize and miscategorize products. Most times, product taxability can occur such that it negates the broader categorization of some products.
Let’s take a look at an example for a clearer understanding. As consumers, we pay taxes on standard products. In a typical grocery receipt, you’ll come across you’ve paid taxes on. There are some instances where the manufacturer’s certain grocery items haven’t packaged their products to impact taxability. As a result, the retail then has to categorize that product as listed on the manufacturer’s instructions. You can end up paying taxes for vinegar (which is a grocery item) simply because it has been packaged for cleaning and not for cooking.
4. Not Auditing
As audits by the state become more frequent, retailers go through immense pressure to provide accurate documentation to back all their transactions. The documents should have detailed responses to questions such as, was a customer overcharged because the retailer didn’t know about a tax holiday? and is there any certificate applicable for when a product is exempt from taxation?
As a retailer, if your documents come with errors, the auditor automatically assumes that your other franchises have similar mistakes and will charge you fines for every location. As with every issue, there’s a solution. Some of the best retail sales tax solutions should include a real-time tax rate calculation to help reduce your exposure risk. It should also match your UPC with well-researched tax content, which prevents you from manually mapping information.