If you sell a product, be ready for sales tax!

June 1, 2011 By 3 Comments

I usually encourage teenage micro business owners to start a service business instead of selling a product, because service businesses are easier to start and manage.

But sometimes a teenager has a great idea of a product to sell. I don’t want to discourage a teenage entrepreneur, but selling products involves knowing about sales tax.

Here’s what you need to do about sales tax (from my book Money and Taxes in a Micro Business):

1. Read up on your state’s sales tax laws.

Most states have a website that explains their sales tax rules. Most states only tax retail sales. Retail sales are the sale to the final customer. Wholesale sales are usually not subject to sales tax. Wholesale sales are usually large quantity sales sold to someone other than the final consumer such as to a business or manufacturer.

This website will help you determine what your state and local laws are concerning sales tax: www.taxadmin.org/fta/link/

2. Obtain a vendor’s license

Most states require businesses to apply for a vendor’s license if they make sales-taxable transactions. Sometimes the state calls it a business tax registration or a sales tax permit. This website www.taxadmin.org/fta/link/ will lead you to the registration information for your state.

Sometimes a state’s sales tax laws can be difficult to understand, so do not be afraid to call your state’s sales tax office. Rehearse what you will ask before calling and say something like, “I’m starting a new business selling ________. Will I need to collect sales tax?” Then ask for information to be mailed (or e-mailed) to you. Do not hang up without getting confirmation that something will be sent to you.

3. Pay your sales tax

For most micro businesses, sales tax will need to be paid only annually or quarterly, but that can vary depending on your state law and the amount of sales you make. Very large retailers must pay sales tax monthly. For example, in New York State, you file a sales tax return only once a year if you owe $3,000 or less in sales tax during the year. The form and tax payment are due March 30.

Mark your calendar with the sales tax due date for your state and send it in on-time or early. If you are late, you will probably be charged a fine.


You can read more about sales tax in my book Money and Taxes in a Micro Business including: 

  • What you need to know about vendor’s licenses
  • Out of state sales
  • Internet sales
  • How to calculate sales tax

Read more about the book including the Table of Contents and a sample here.

Filed Under: Blog, Money & Taxes Tagged With:

Etsy and Sales Tax

May 23, 2011 By Leave a Comment

Hi Carol,
My 13yo daughter just opened an Etsy shop to sell model horse tack. (Is that considered a micro business?)
I am going to order your micro business curriculum (Starting/Running/Workbook). Is tax info covered in the curriculum?

Good for your daughter and, yes, her Etsy store is a micro business! :-)

You would probably benefit from the Money and Taxes in a Micro Business book because it discusses sales tax as well as income and self-employment tax.  The Money and Taxes in a Micro Business is not part of the 3 book curriculum you mentioned. It’s the 4th book. Read more about Money and Taxes in a Micro Business here.

I read up on how Etsy handles sales tax. If you program in your state into your Etsy store, Etsy will add the sales tax to customers from that state. You do not have to collect sales tax from out of state customers. Here’s a helpful explanation from Etsy:
http://www.etsy.com/storque/seller-handbook/tax-tips-everything-you-need-to-know-about-sales-tax-10963/

Fortunately, Etsy’s new Checkout process gives sellers a one-time, simple way to calculate and set up their sales tax collection down to the zip code. Just go to Sales Tax under Your Etsy and enter the rates for each U.S. state or zip code, Canadian province, or country where you would like to charge sales tax. When a shopper from that area buys from you, sales tax will automatically be charged. Find step-by-step instructions on setting up your Etsy sales tax collection in the Help section.

Your daughter will  have to add up the sales tax each quarter (or half year) and send in the sales tax collected to her state. From Etsy’s website:

It is your responsibility as an Etsy shop owner to report and remit the sales tax you’ve collected to the appropriate taxing authority. And every state collects in a different way. For instance, in California, state sales taxes are collected by the State Board of Equalization, which also issues mandatory sellers permits (required for sellers who sell tangible goods, such as Etsy sellers). To find out who administers sales tax in your state — and what you need to do to stay legal – find your state guide at Outright.

Sales tax can get complicated, but Etsy makes it pretty easy. Your daughter will learn a lot about taxes, setting her price, dealing with her state sales tax division and being responsible for sending in her sales tax payments! You’ll be very proud of her!

Filed Under: Blog, Money & Taxes Tagged With: ,

iPhone Apps as a micro business

May 10, 2010 By Leave a Comment
Here’s a clever teenager finding a neat micro business: iPhone apps
My name is Jonah. I am 13 years old and I met you last year at the Cincinnati Homeschool Convention. My mom and I attended your talk. You mentioned that I could get in touch with you if I any questions. Here’s my question:
I am looking to start up a micro business by creating iPhone Apps for people. In order to do so, Apple requires one of the following:

  • Articles of incorporation
  • Business license
  • Certificate of Formation
  • Charter documents
  • Operating Agreement
  • Partnership papers
  • Reseller or vendor license
I was wondering how I would be able to get one of those since I’m just starting up a micro business.
Jonah,

Getting a vendor’s license would be the easiest. All the other options involve forming a corporation, something you do not need and are not ready for.

In Ohio you can apply for a vendor’s license at the Secretary of State’s website: http://tax.ohio.gov/divisions/sales_and_use/license.stm

There are several types vendors licenses depending on what you sell and if you travel around selling.  I recommend the Service Vendor license.  It costs $25.

A word of warning: the State of Ohio expects micro businesses to file sales tax returns every 6 months even if you do not have any  sales. One man was fined over $100 because he did not file a sales tax return, even though he didn’t have any sales yet; he was just getting started. He managed to talk them out of the fine.

Here is where you go to file the sales tax returns.
http://tax.ohio.gov/online_services/business_taxes_sales_filing.stm


Follow up: Jonah emailed me to say this:

I was able to join the iPhone development program without having to get a vendors license… Turns out if you sign up as a individual, you don’t need to provide any info.

That’s great, but Jonah may still need a vendor’s license and may need to collect sales tax on the sale of his apps.  It depends on the rules of his state and whether he sells to the final user. Jonah will only collect sales tax if he sells to the final purchaser. If Jonah is a wholesaler and sells to a company (like Apple) that resells his app, Jonah is not responsible for sales tax; the reseller is responsible for collecting sale tax.
Filed Under: Blog, Ideas, Money & Taxes, Starting a Micro Tagged With: , , ,