$$ with or without tax

This may not be in the right place. If not please feel free to move it.

For those of you that sell, do you include tax in the price or do you "plus tax"?
Say at $5.50 a bar, tax included, where I live that would equate to $5.09 plus $0.41 for the tax man. At $5.50 plus tax it changes to $5.50 plus $0.44 for the tax man.

The sticky part is when you go over a "Magic $". At say $6.00 a bar you're at $5.56 with $0.44 for taxes, included. That same $6.00 becomes $6.00 plus $0.48 not included.

Does adding tax after the fact seem to all of a sudden make the final price to high? Or do you let it eat into some of your profit it order to keep the final number more acceptable?

I would think that everyone is so accustomed to buying something and then paying additional in taxes it wouldn't be an issue. Or is it :think:

This is a matter I've been mulling over and though you may come to a different decision, here's mine. Recently I left a basket of soaps in the lounge of the school where I work. It was on the "honor" system. There are often things for sale left there and no one seems to take them (though I'd been advised to check back often and remove any money from the envelope.) For those purchases, I rounded and gave the prices as "tax included." I didn't figure those purchasers needed to figure taxes. Next week I'll make a local craft show (Thur. and Fri.) There I'll add the tax to the totaled amount of each purchase. I try to keep my prices low enough that adding tax will not hurt anyone.

I like to add tax in top of the soap price, but if you're doing a show you have to bring so much change and its really a pain.

I live in one of the states that doesn't have a sales tax. But, I live very close to one that does. When I was quite young, I had a friend who had a barrette I admired. She lived in the other state (which I didn't even know). I didn't know about sales taxes. But, she told me that they cost X amount of dollars, and if I bring it to her, she'd buy one for me.

When I came the next week, dollar in hand. . . she said, "this isn't enough money." I said, "what do you mean? You said it cost $1." She said, "Plus tax." I was so confused, but gave her the extra (I think it was $.05).

That's when I learned about sales tax. But, my point is, it appears from that experience, that sales tax feels like just a normal part of doing business to the consumer, and they don't seem to give it much thought.

On a side note, you don't charge sales tax to customers from out of state, in case you didn't already know, and you're not speaking locally.

I loved your story, Lotus! However I disagree with your point (tho maybe I'm just not understanding. ) One pays the tax for the state you are shopping in. Unless you mean on the internet.

Ruthie said:

I loved your story, Lotus! However I disagree with your point (tho maybe I'm just not understanding. ) One pays the tax for the state you are shopping in. Unless you mean on the internet.

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Thank you!!

I was referring to the internet. However, the same is true physically, as well. As long as you show your ID, you don't have to pay it. However, most places that aren't near a border, won't honor this, which is also fine. . . and will just charge you anyway.

Edit: the reason that many stores won't do this, is they have to take down your ID number and register the sale as out of state, and I think this is more work than it's worth for most vendors.

Lotus said:

Thank you!!

I was referring to the internet. However, the same is true physically, as well. As long as you show your ID, you don't have to pay it. However, most places that aren't near a border, won't honor this, which is also fine. . . and will just charge you anyway.

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Gee, I had never heard that. So I wonder why those Okies that go to Texas to shop the tax free weekend don't just go any time, not just that weekend. ....

I am in the state Lotus is talking about I charge sales tax on top of my price. I do not offer other residents tax exemptions when buying face to face - too much paper work and I am a very small business. However, online sales I only charge WA residents sales tax. Everyone else is not charged.

For RETAIL customers:
Online sale sent to an in-state address -- charge sales tax.
Online sale shipped to out of state address -- no sales tax.
Face-to-face sale -- charge sales tax for the state in which the sale is made.

For WHOLESALE customers -- no sales tax, but the seller is responsible for documenting the buyer is a valid wholesale customer. The point here is that the customer is buying product for resale, not for personal use. The buyer's state sales tax ID is probably the most important piece of information to collect. If your state audits your wholesale records, you will be expected to provide that documentation.

I had to research all this recently for an unusual retail transaction. My business is in Iowa. A guy living in Alaska wanted to purchase something from me with a credit card with an Alaska billing address. He wanted the order sent to an Iowa address. He thought he could avoid paying Iowa sales tax because he thought his Alaska billing address would make the transaction an out-of-state sale. He was wrong.

The thing about sales tax is that it applies to the state in which the goods are transferred from seller to buyer, not the state from which the buyer pays or where the buyer resides. Some examples:

If I am at a show in Wisconsin, I pay WI sales tax on the show sales. At that fair, my place of business is Wisconsin and my buyers are taking receipt of goods in WI.

If a Wisconsin person comes to my Iowa shop to pick up and pay for an order, that buyer pays Iowa sales tax on that sale. For that transaction, my place of business is Iowa and the buyer is taking receipt of goods in Iowa.

A bit of a rant about wholesale:

I honestly don't know how you can prevent a wholesale customer from buying at least some product at wholesale for the buyer's personal use. Technically they should buy personal items at retail, but the reality is that most wholesale customers don't.

On the other hand, I have learned there are a few retail customers out there who want to pretend as if they're wholesale buyers to get my wholesale prices and evade sales tax. Frankly, I do not care to make a wholesale sale to a retail customer -- it's all for their benefit literally at my expense. The solution? Require a tax ID for all wholesale sales and set a minimum order amount. Very few retail buyers have a tax ID AND are willing to buy 6 of a particular item or make a $100 minimum purchase.

For shows, it's much easier to build the tax into the price. I make face to face customers aware of this since online, tax is added only to in-state customers so the prices are "pre-tax" for listings. Then tax is added at checkout if applicable.

As far as how to present the sales tax to a customer, I do it two ways. I don't sell soap, but I would still use the same approach if I did --

For a show or fair, I know in advance that everyone will need to pay the sales tax. I build the tax into the price and round to the nearest $0.25 or nearest $0.50 ($3.50, $4.00, $4.75, etc.). I make sure all my signage makes it clear that the prices include sales tax. I have never had a consumer balk at that -- most folks like the idea of "what you see is what you pay". The simple "tax included" pricing kind of fits in with the festival flavor of most shows and fairs. It also makes my life much easier making change and dealing with customers.

After the show, I back out the sales tax from my gross receipts to calculate my net income. Even though this method of handling the sales tax might result in slightly different numbers than if I had added the tax to the merchandise total, it still comes fairly close. Even if my net is a wee bit lower (and I try hard to avoid that!), the convenience factor is worth it.

For my website, sales tax is calculated on the merchandise cost and added with shipping to figure the final price the customer pays. I don't know who will have to pay the tax, so it is not fair to build it into my website pricing. In fact, most customers don't pay sales tax, because most of my website sales are out of state purchases. I would also do this if I had an online store at etsy, ebay, etc.

DeeAnna said:

As far as how to present the sales tax to a customer, I do it two ways. I don't sell soap, but I would still use the same approach if I did --

For a show or fair, I know in advance that everyone will need to pay the sales tax. I build the tax into the price and round to the nearest $0.25 or nearest $0.50 ($3.50, $4.00, $4.75, etc.). I make sure all my signage makes it clear that the prices include sales tax. I have never had a consumer balk at that -- most folks like the idea of "what you see is what you pay". The simple "tax included" pricing kind of fits in with the festival flavor of most shows and fairs. It also makes my life much easier making change and dealing with customers.

After the show, I back out the sales tax from my gross receipts to calculate my net income. Even though this method of handling the sales tax might result in slightly different numbers than if I had added the tax to the merchandise total, it still comes fairly close. Even if my net is a wee bit lower (and I try hard to avoid that!), the convenience factor is worth it.

For my website, sales tax is calculated on the merchandise cost and added with shipping to figure the final price the customer pays. I don't know who will have to pay the tax, so it is not fair to build it into my website pricing. In fact, most customers don't pay sales tax, because most of my website sales are out of state purchases. I would also do this if I had an online store at etsy, ebay, etc.

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I was playing around with pricing last night and you are spot on with the rounding factor to the nearest $0.25 or $0.50. It makes things so much simpler than figuring in pennies, nickles and dimes.

I think for shows I'm going with "tax included". It's simple, it's clean and even though a customer might find a $6.00 product reasonable, add in another 8% tax and all of a sudden $6.48 might seem unreasonable.

Thanks.

I used to include tax in my price as well. At shows it's definitely easier to charge $5.50 than adding tax on top. But I recently changed that. My soap is worth the $5.50 and I don't want to take away from that - so this year was the first time I charged the full $5.95 (that's what it comes up to in my area). Not one person complained - I was pleasantly surprised. Some may have not bought at all for that price, but I still give them a little sliver sample anyway Maybe they'll be back next time.

I'm not sure I made myself clear. If my base retail price for an item is $5.50, I most certainly don't sell it for that and deduct the sales tax from that amount.

Here is how I would figure the pricing for a show/fair: The Iowa sales tax (7%) on $5.50 is $0.39. The base cost including tax is this: $5.50 + $0.39 = $5.89. Rounding up to the nearest $0.25 gives me $6.00. I would price this product at $6.00, tax included for the show. On my website, it would sell for $5.50, tax not included.

LuvOurNewf-- you need to be very careful with sales tax in the state of NY. That is where I am selling currently (military family so we move a lot) and their laws aren't as simple as what some are suggesting. New York state requires that any online sales to be shipped to a buyer in NY to be charged sales tax, as well as a shipping tax if you are charging for shipping. The receipt the buyer receives must be itemized to show exactly how much sales/shipping tax the buyer is being charged. It is illegal to include the tax in the price of your item and not then itemize on the receipt (online and face-to-face sales). When selling at a craft show, farmer's market, whatever, you still need to charge sales tax for the area you are in. In NY, sales taxes are not determined by postal (zip) codes. They are determined by political districts. This means people in the same zip code may have to pay separate tax rates, also people on the same street may even have different sales tax rates depending on the political districts of the area. not many states do it this way and it's very annoying.

I use the square register (for my phone) for cash and card sales at the farmer's market I attend. I like it because it allows me to send itemized receipts to customers whether they paid with cash or used their card. That way I don't always have to write everything out on a receipt book, I can just email or text it to them from the app.

I hope this makes sense for you! I found a blog that details the hoops you have to jump through to sell in NY state. Here's the link: http://www.gotogreatpanes.com/blog/ny-sales-tax-business-registration/

Also check out the NY state tax site at: http://www.tax.ny.gov/

Hope this helps! It's a bit confusing but once you figure it out it's not bad. If you need to register to be able to apply to collect sales tax, check out this site for help. http://www.opal.ny.gov/gorr/pas/pas2.nsf/OPALHome?OpenForm

Thanks for the info, Mommysoaper. I'm glad I only have to deal with sales tax for Iowa, Wisconsin, and Minnesota. You make my sales tax issues seem easy!

Mommysoaper said:

LuvOurNewf-- you need to be very careful with sales tax in the state of NY. That is where I am selling currently (military family so we move a lot) and their laws aren't as simple as what some are suggesting. New York state requires that any online sales to be shipped to a buyer in NY to be charged sales tax, as well as a shipping tax if you are charging for shipping. The receipt the buyer receives must be itemized to show exactly how much sales/shipping tax the buyer is being charged. It is illegal to include the tax in the price of your item and not then itemize on the receipt (online and face-to-face sales). When selling at a craft show, farmer's market, whatever, you still need to charge sales tax for the area you are in. In NY, sales taxes are not determined by postal (zip) codes. They are determined by political districts. This means people in the same zip code may have to pay separate tax rates, also people on the same street may even have different sales tax rates depending on the political districts of the area. not many states do it this way and it's very annoying.

I use the square register (for my phone) for cash and card sales at the farmer's market I attend. I like it because it allows me to send itemized receipts to customers whether they paid with cash or used their card. That way I don't always have to write everything out on a receipt book, I can just email or text it to them from the app.

I hope this makes sense for you! I found a blog that details the hoops you have to jump through to sell in NY state. Here's the link: http://www.gotogreatpanes.com/blog/ny-sales-tax-business-registration/

Also check out the NY state tax site at: http://www.tax.ny.gov/

Hope this helps! It's a bit confusing but once you figure it out it's not bad. If you need to register to be able to apply to collect sales tax, check out this site for help. http://www.opal.ny.gov/gorr/pas/pas2.nsf/OPALHome?OpenForm

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Thanks Mommysoaper.

As of now we aren't doing any online sales. I too use Square and have set it up that if I'm charging say $5.50 tax included the receipt will indicate $5.09 with an additional $0.41 tax for the counties we are working in at 8%. I know the tax rates in NY can get screwy, anywhere from 7% up in some of the Northern counties to almost 9% toward NYC.

Hope your enjoying NY.