Sales Tax: Part 1- General and Local Taxes

How often do you find yourself getting a headache over sales tax? 

Sales tax doesn’t have to be tricky or lead to many late nights filled with lengthy calculations and stress. However, can we really blame business owners and creatives for pushing sales tax to the back of their minds and even trying to forget it altogether? After all, it not only varies between state but also city or county! On the bright side, your sales software should really help you figure all of this out and most states today require sale tax returns be filed online reducing paper calculations.

In Tennessee sales tax applies to tangible personal property (for example: furniture), digital products and computers, lodging, telecommunications and some repair services. The seller must pay this tax whether it’s collected from the customer or not. This means that you, as the seller, can decide where to put sales tax within the prices of your products or add it on. Most customers tend to expect to pay sales tax on top of the advertised price. However, you can weave it into total price of your products, as long as you clearly state it. This could have the advantage of being an all-in-one price, a nice surprise for the customer, but also might be more problematic if you’re looking to avoid calculations later.

Sales tax can be broken down into general and local. General sales taxes are set by the state and are a blanket cost for all sellers. Here in Tennessee, this equates to 7% of the sales price for each item. Local sales tax is set by your county or city, and in Shelby County where this business is located, it equates to 2.25% currently. 

Noticeably, this means that the total amount of sales tax you’re expected to pay (as a seller) can vary depending on where you’re located as well as where your products are physically sold. For example, if you’re a creative attending an out-of-state trade show, you’ll have to consider the specific general and local taxes places within that area so that you can add the right amount of sales tax to your goods. Some entrepreneurs seem to avoid or forget this discrepancy and simply calculate one sales tax rate, but this can lead to problems if you’re found to have sold elsewhere than declared, so it makes sense to read into the subject to ensure you’re paying the correct amount of sales tax to the correct state.

As previously mentioned, handling sales tax is often low on the list of things to do, but it is important to do before you start selling either in your home county or out-of-state.

If you’d like more guidance, feel free to book a free consultation call with me here.