It’s an easy thing to get wrong. So please be advised that I am not a tax accountant. Anything I say in this blog should be taken with all the seriousness as the ramblings of the Mayberry town drunk in Barney’s holding cell. In other words: these are just my thoughts. They should not be taken without consulting much more learned and informed people than I am.
With sales tax, as with many other things, it is sometimes helpful to work backwards. Take a look at the forms or online tools that you will ultimately use to pay your sales tax liability. Then working backwards from that, make sure throughout the year you collect the information that the forms and tools are asking for. For me, those forms are organized by County and then city. So that means that when I am collecting data through the year, I need to collect the following information:
- Sales amount (I summarize the total amount collected, including sales tax, by event)
- City and County where event takes place (note that this is different than the City/County of the organization itself… it needs to be where the sales physically took place)
- Tax rate — needed for figuring out the price to charge.
You’ll want to have a way to record this information in some reliable and convenient form so you will have it when it’s time to do taxes. I use gigfolder.com to collect all of the above data. QuickBooks is also an excellent tool for collecting this information in a useful manner. Frankly, you could also use a spreadsheet. What ever method you use, make sure you are consistent throughout the year, so you will have all of the data when you need it. Don’t put off entering this information, you’ll be surprised at how painful it is to do this all at once. I do have some experience with this particular pain point.
Here is one more thing that I have found helpful. I find it easiest to only collect total sales income for events (total sales income includes price plus sales tax collected). This discussion is a bit mathematical. And I have to define a few words in order to show you the simple formula I want to share. My set up is way more complicated than what I want to show you. Sigh. Here’s how I’m defining the terms “total sales”, “sales tax”, and “product sales”:
- total sales = product sales + sales tax
I’m sure accountants would be horrified at my word choice. But, I couldn’t find consistent/better words. If you know what they should be, please post a reply!
Anyway, back to what I wanted to show you. It’s pretty easy to separate out the sales tax by using this simple formula:
- product sales = total sales / ( 1 + tax rate as a decimal)
For example, if you took in $100 (including sales tax) in a city that has a 9.5% tax rate:
- $100 / 1.095 = $91.32 product sales include (without sales tax)
The alternative is to collect product sales and sales tax information at the point of sale. If you’re setup to do that easily, great. When my wife Kathi is out speaking at an event, she doesn’t want to have to deal with collecting/recording extra information during the event. That would distract her from interacting with the people she is there to see. Ultimately, that would reduce sales too.