Sales Tax: Part 2- Tennessee-Based Business Tax Collection
This blog highlights the where, when, and how of Sales Tax Collection, and is most relevant for Tennessee-based businesses and selling to customers in Tennessee. Online and out of state info to come!
Registering in Tennessee
Sales Tax is based on the location of the sale and everyone with a business must collect it. In fact, the Tennessee Department of Revenue has declared that all business owners must register with the department before conducting any business or transactions within the state. This is particularly relevant if you read our last blog and wondered how to manage sales taxes if you’re attending craft shows in different states. As always, other states may vary, but in Tennessee, you’ll have to possess a Certificate of Registration prior to conducting business, even if you aren’t living in the state. To do this, organization is key, the registration process may not be instant. Leaving it until the Friday of your weekend craft show is not recommended as you are unlikely to become registered in time and this can halt your whole trading process.
Basic Taxable Items
Now, it’s important to note that we’re not focussing on your local garage sale. This Sales Tax information is applicable to “any entity wishing to manufacture, distribute, sell, rent or lease tangible personal property or provide taxable services” according to TN Department of Revenue.
In Tennessee, the state tax amounts to a base rate of 7%, and each individual county is permitted to set an additional sales tax rate at their own discretion, capped at 2.75%. Once again, this means checking with your local county to find out the exact percentage that will be taxed and how to work this into your rate or product price. For example, you may be able to forego collecting sales tax if you “have average monthly gross sales of $400 or less of tangible personal property,” or if you “have taxable services of $100 or less”. with these exceptions:
Are at the discretion of the Commissioner
May mean you are required to pay tax to your supplier on purchases
Does not supersede the registration that every business must undergo
One of the industries affected by an exemption clause is food or food items. For example, where the general sales tax for the state is 7% on items such as tobacco, candy, alcohol and prepared food, other “foods and ingredients” lie with a sales tax rate of just 4%.
If you find your business is among those that qualify for partial or full sales tax exemption, you may require verification in the form of an exemption certification.
Pricing
As we discussed in the last blog post, the seller is liable for the tax, whether it is collected from the customer or not. This means that the sales tax may be applied to the sales price or built in where the sales price indicates the total amount that the seller requires to be paid for the product or service. If you build in your sales tax you must note on a sign or in your invoice that the price includes tax.
Under Tennessee law, “sales price” specifically includes delivery charges in the sales price of a transaction. When a seller adds delivery charges (e.g., shipping, freight, postage, handling, etc.) to an invoice these charges are taxable .
For example, let’s say you own a pottery business and you get an order from a Tennessee-based customer. You require special couriers as your product is fragile and can be prone to breakage, which is an added cost of $20 above the sales price. That $20 is also taxable.
Due Date
It is also important to note that sales tax is due for the month that the sale is made and not the month the payment is collected. For example, if an item of yours was ordered on the 31st January, but this item was collected and paid for on the 6th February you may still be required to pay the Sales Tax for this item in January and may vary by state.
Sales Tax is can be confusing, but it doesn’t have to take up all of your spare time. If you’d like to chat about it with a Financial Advisor, please contact me here.