Wednesday, July 06, 2005

Pitfall - Charging the wrong tax

Pitfall - Charging the wrong tax

As yesterday's article in the Chicago Sun-Times illustrates, one of the problems that sellers have is simply making sure that they tax their products properly. For most, this isn't a big deal. But if you sell certain types of commodities, like drugs, food or clothing, it becomes a problem - depending ont the state you're in. Other vendors who seem to have problems determining the taxability of their sales are contractors, services vendors, and equipment vendors selling to manufacturers.

How do you solve this problem? Go through your offering, go through the law in the state where title transfers, and figure out the taxability of your sales. This sounds simple, but if you've never thoroughly done this, being aware of how tricky this can be, then you're probably messing this up. If you're relying on an old cheat sheet hanging on the wall in the billing department, you're in trouble.

Remember that you're screwed in two different ways:

1. If you didn't charge the tax that you should have, then the state will want their money from you. Good luck getting it back from your customer.

2. If you charged too much tax, you're doing wrong by your customer. And if they find out about it, they will be ticked off at you, which isn't a good thing. And they may want their money back. Good luck with getting it back from the state.

Of course, the other complication is making sure you are following the laws in the correct jurisdiction, usually where title transfers.


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