To The Point
News from First Tier Accounting


May 2014
In This Issue
Avoiding Common Sales & Use Tax Pitfalls
QuickBooks Corner - Tracking Sales Tax
This Month's Quote

We are what we repeatedly do. Excellence, then, is not an act, but a habit.  ~ Aristotle

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May 12-16, 2014 is National Small Business Week.  Visit www.sba.gov for free seminars and information geared for small business owners.  And don't forget to patronize your local small businesses - they rely on your support!
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First Tier Accounting is committed to helping small businesses maintain accurate and timely accounting records, understand their financial data and use this information to better manage business operations.
Greetings!
Spring is finally here and the flowers are blooming!  I hope you are doing well and your business is blooming as well!

I have some great articles planned for this year and I hope you enjoy the information I have to share.  Your feedback and comments are always welcome, so feel free to call or email me with ideas, suggestions or comments.

This month's newsletter focuses on the often-confusing and ever-changing world of sales and use tax.  Not only do you need to know what taxes your business is responsible for, you also need to know the correct rates, when to remit payment and how to file the returns.  I have worked with many clients to get their sales and use tax issues straightened out, so remember that I am always here as a resource if you need help understanding or managing your sales and use tax obligations.

QuickBooks can help you keep track of your sales tax, so be sure to check out the QuickBooks corner for some tips on tracking sales tax in QuickBooks.
 
Feel free to share this newsletter with colleagues, friends or business owners who you think might benefit from the information. 
   
Have a great month!

Tracey
763.227.1841
Avoiding Common Sales & Use Tax Pitfalls
Sales tax can be among the most confusing of all business taxes you will encounter.  Sales tax is a tax paid by the consumer.  Businesses are just the means for collecting and remitting this tax.  As a business owner, you are obligated to collect the sales tax from your customer and remit it to the state.  The business is held liable for any errors in collecting or remitting the taxes, and errors can be costly - there are fines for failing to file, as well as fines for filing late or not paying the taxes when due. So it pays to educate yourself on what your business's sales and use tax obligations are.  Here are some of the more common problems I have encountered when working with clients:
 
Not charging sales tax on taxable sales
In Minnesota, most retail sales are taxable, except for some clothing, food and drugs.  Also some services, such as janitorial services, lawn/garden maintenance and massages, are taxable. If you ship taxable items to your customers, then the shipping is also taxable.  

Not charging the correct sales tax rate
There are numerous sales tax rates for Minnesota.  Besides the state rate of 6.875%, there are local sales taxes such as city taxes and county taxes, and special taxes such as transit tax.  The sales tax needs to be charged according to where the customer takes possession of the goods or services.  For example, if you own a shop in St Paul and a customer purchases something in your shop, then you need to charge them the rate for St. Paul.  If you ship the product to your customer, then you need to charge sales tax according to the delivery address of the customer.  One important item to note:  If the customer is out of state, you do not need to charge sales tax.  Obviously, this can get tricky if you sell anything over the internet, as the shopping cart needs to be set up to charge the correct rate for each customer, based on their shipping information.

Not filing tax returns and/or paying taxes on time
Before you can collect, pay or file any sales tax returns, you need to register with the Minnesota Dept of Revenue.  You will be issued a state ID number (if you don't already have one), and will be assigned a filing frequency.  Typically, this will be quarterly.  The state can change your frequency at the beginning of the year based on your total tax liability for the previous year.  If you exceed the threshold for quarterly filing, you will be required to file monthly.  If you are below the threshold, you may be changed to an annual filer.  Each frequency has its own particular due dates, so knowing your filing status is critical to paying your taxes on time.

Not paying use tax
Whether or not your business is required to collect and remit sales tax, you still may be liable for use tax.  Use tax is assessed when you purchase goods that are normally taxable in Minnesota, but you are not charged sales tax (i.e. you purchase the item from an out of state vendor who doesn't charge you sales tax).  It is your obligation to track these purchases, accrue the use tax on them and remit to the state according to your filing frequency for sales tax (or annually if you are not required to file sales tax returns).  

In addition to these more commonly overlooked issues, you can have special issues related to your business that may require further investigation or follow up with the state to ensure that you are charging tax correctly.  Unfortunately, most people do not find out they have any of these issues until they are audited by the state.  That is not the time you want to find out about problems!!
You may think that it is unlikely you will ever be audited, but you are actually quite likely to be audited.  The state audits many businesses, big and small, and since they can audit you every 3-1/2 years, some businesses get audited repeatedly.  The more prepared you are to deal with an audit, the better the outcome for your business and the less likely the auditors are to return.  So, in the case of sale and use tax, an ounce of prevention really is worth a pound of cure!

The Minnesota Dept of Revenue web site has an instruction booklet and many facts sheets available on specific issues, so it is a great place to start to gather information for your business.  I would also be happy to discuss your sales and use tax issues with your to ensure that you are meeting your obligations and have the proper documentation.  Please contact me at [email protected] to schedule an appointment.
 
QuickBooks Corner - Tracking Sales Tax in QuickBooks

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QuickBooks has some built-in features that you can use to track sales tax and make it easier to gather the information needed when it comes time to file your sales tax return.

 

Under the Items in QuickBooks, you can set up sales tax items to track the various taxes and rates, based on locality.  For areas that have multiple rates, such as Minneapolis, you can assign multiple sales tax items to sales tax groups, so you have the correct rate and breakdown for each location.  

 

Once your sales tax items and groups are set up, you can assign them to customers, so that you charge the correct sales tax rate for each customer.  You can override any sales tax rate or make particular billing items non-taxable, to customize your QuickBooks so it charges the correct overall rate on your customer's invoice.

 

When it comes time to file and pay you sales tax, you can print a report from QuickBooks which summarizes all of your sales totals and tax amounts, so you can easily enter this information on the sales tax return.  You can also track payments of sales tax so you have a record of when you make each payment.

 

Depending on the complexity of your sales tax issues, you may need some guidance to get this function set up correctly in QuickBooks for your business.  If you would like to schedule an appointment to set up and/or review your sales tax items in QuickBooks, please email me at [email protected].