Tuesday, May 24, 2011

Selling Your Products with Sales Tax Included

When I first started selling handwovens at craft fairs, I was irritated about having to pull out my calculator to figure the sales tax for each purchase and then having to make coin change for each sale. Someone gave me a tip that I have followed ever since to makes my transactions clear and simple and everyone, including the customer and state, happy. I include the state sales tax in the marked price. (I also make this price a round dollar figure, so there is no need for any coin change.) For example, a $20 towel can now be an impulse buy. The customer sees it, likes it and happens to have the $20 in their billfold. The question, of course, is how do I figure and report the taxes to the state.

To use this method, all you need is a calculator. You won’t even need to do this chore until you report your sales tax and need to send to the state (unless you are curious). Say you have just tallied up your sales for Winterfaire and find that you have collected $550. Divide $550 by 1.08375, and you will find out how much you can keep. In this case, $507.50. Subtract $507.50 from $550 to get the sales tax you will need to send to the state.

Total Sales ¸ Sales Tax factor = Net without Sales tax  $550 ¸ 1.08375 = $507.50
Total Sales - Net without Sales tax = Sales Tax to report to CA  $550 - $507.50 = $42.50

Where did I get the 1.08375 divisor? Well, I originally figured this out algebraically, but all you really need to know to make this work is your tax rate percentage. In our case, the tax rate for Grass Valley is 8.375%. Convert that to a decimal - .08375 and add 1. Should you be selling at another venue with a different tax rate, substitute the decimal form of the percentage and add 1.

If all of this seems daunting, there is also a web site that will do the calculation for you. All you need is the amount of your total receipts and your tax rate in decimal form. Use the De-calculate Sales Tax boxes.

If this method interests you, I suggest that you play around with doing the calculations and decide how much extra you will want to add to your prices. Then, put up a little sign in your shop that all prices include sales tax.

Thanks to Ingrid Knox who helped me edit this piece when I wrote it up for another group

2 comments:

  1. Thanks for putting this in a blog so I can find the information again. I think I'm going to need it next week.

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