Sales Tax

15 Odd American Taxes You May Have to Pay

Paul Michael — Fri, 16 Mar 2018 09:00:06 +0000

Benjamin Franklin famously said, "In this world nothing can be certain, except death and taxes." What we can also be certain of is that strange, sometimes archaic taxes will always endure. For whatever reason, the following tax laws still exist, and they continue to bewilder the average taxpayer. (See also: The 11 Oddest Things America Has Ever Taxed)

1. The coffee cup lid tax

Colorado has a strange idea of what is essential packaging, and what is superfluous to requirements. As it turns out, the disposable cup that holds your morning coffee or tea is required, but the lid that stops it splashing everywhere (especially in the car) is "nice to have." As it's a nonessential, it is subject to an additional 2.9 percent tax. If you drink a $4 coffee every day, that adds up to an extra $40 every year.

2. The candy tax

Willy Wonka would be no fan of the Prairie state. For some reason, Illinois has decided that any sweet candy or other sugary treat is liable for an additional 5 percent sales tax, on one condition — that the snack contains no flour. So, something like a Kit Kat or Milky Way bar will not be subject to the tax, whereas a 3 Musketeers bar or chocolate covered raisins come with that extra charge.

3. The fur coat tax

First thoughts on this tax? Good. With advances in fabrics and science, there's no need to kill an animal purely for its fur. However, it still happens. While many clothing items are exempt from sales tax in Minnesota, garments that have three times more fur than any other material are subject to an additional 6.875 percent sales tax. If you want the fur look, faux fur is just as good and is exempt from the tax. Also, if the garment has only a little fur, perhaps on the collar or cuffs, it also escapes the tax.

4. Drug dealers and thieves must report their income

Mark this one down as very strange but true. You may think that a drug dealer or thief wouldn't care too much about reporting their income on a tax return, however, let's not forget that taxes, not murder or racketeering, sent Al Capone to Alcatraz. According to the IRS, "Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity."

5. The arrow excise tax

If you hunt with a bow and arrow, or partake in the sport of archery, your wallet could be getting hit with a hefty fee of 43 cents per arrow. The tax goes back to 1937's Wildlife Restoration Act, with the proceeds from the tax going to the U.S. Fish and Wildlife Service. If your arrows are longer than 18 inches, or are used with a specific kind of bow with a certain amount of draw, you'll get hit with the tax. Shorter arrows, and certain arrows for children's bows, are exempt.

6. The tattoos and piercings tax

Hey there body-modders of Arkansas, this one stings. Did you know that since 2002, your state has added an additional tax on any tattoos or piercings you get? It amounts to a 6 percent sales tax, which may not seem like a lot, but can add up over time. So, why did Arkansas impose this strange tax? To discourage people from getting them done, of course. However, anyone who is ready to endure hours of pain or the burn of a tattoo is probably not going to be put off by a sales tax.

7. The starving artist tax break

Are you a performing artist? A busker perhaps, or someone that sketches tourists on the streets of your city? Well, you're in luck … if you're broke. That's the irony of the starving artist deduction, which has some bizarre specifications. First, you must have worked for at least two employers and received at least $200 in income from each one during the year. Second, your expenses must be more than 10 percent of the income you receive from performances. And finally, your adjusted gross income must be less than $16,000. If you qualify, you can deduct paints, brushes, dancewear, or anything else you need to ply your trade.

8. The hot air balloon tax

Here's an odd one form the state of Kansas, which can have an impact on anyone that makes a living from hot air balloon rides. If you use the hot air balloon to do sightseeing jaunts, soaring high above the landscape for miles, you don't get taxed. But, if the balloon just goes up and down, staying tethered at all times, it stops becoming a mode of air transportation and is instead considered an amusement ride. In Kansas, that's subject to an amusement tax of 6.5 percent.

9. The 100th birthday tax break

In England, if you manage to stay alive long enough to hit triple digits, you actually get a congratulatory card from the Queen. In New Mexico, you get an even better gift. Providing you have resided in the state for at least six months, are a resident on December 31, and are not listed as a dependent on someone else's taxes, you will become completely exempt from state income taxes. Now that's worth a party in itself.

10. The vending machine fruit tax

If you're looking for a tax to make you scratch your head in disbelief, this is a contender. California, which considers itself a healthy state, incentivized fresh fruit purchases by exempting them from tax. Great, right? Well, there's a loophole. And wherever there's a loophole, there's a way to make money. If that fruit is sold from a vending machine, it somehow loses its healthy status, and gets taxed at a whopping 33 percent of the sale price.

11. The flush tax

When you gotta go, you gotta go. But the folks in Maryland are paying a little more than the rest of us to do so. In fact, the "flush tax" that was established in 2004 doubled from $30 per year to $60 per year in 2012, meaning every resident of the Old Line State is paying around $5 per month more than the rest of us just to go to the bathroom. However, it's all for a good reason. The local CBS affiliate reported last year that additional money raised by the tax has lead to state of the art upgrades that reduce nitrogen and solid waste by millions of pounds per year.

12. The belt buckle tax

If you had to take a wild guess on which state would impose a tax on belt buckles, Texas would probably be last on your list. After all, ornate, decorative, and patriotic belt buckles are as much a part of the Texan wardrobe as boots and hats. However, it's perhaps this predominance of buckles that made one lawmaker see dollar signs. So, get ready to pony up the dough, because you'll get taxed an additional 6.25 percent sales tax on every belt buckle you buy in Texas.

13. The sexually explicit business tax

Utah has a tax that doesn't go over well with adult service providers. According to the Utah State Tax Commission, the sexually explicit business tax is an additional tax on "admission and user fees, retail sales of tangible personal property including food and drinks, and services occurring in a business with nude or partially nude individuals." How much is it? An additional 10 percent tax on top of regular sales and use taxes. In short, if you're going to do naughty things in Utah, you have to have a slightly bigger wallet.

14. The exceptional tree tax break

Do you live in Hawaii? Do you have a magnificent specimen of a tree in your backyard or front lawn? Well, congratulations. A strange but perfectly legitimate tax break still exists that allows you to write off up to $3,000 in qualified costs and expenditure on your tree maintenance. Exceptional doesn't mean, "Wow, my tree looks awesome!" In this case, the state takes into account age, rarity, location, size, aesthetic quality, endemic status, and if it is, in fact, worthy of preservation. If you check all those boxes, you get the write-off.

15. The blueberry tax

The state of Maine is the largest producer of wild blueberries in the world. Whether you're eating blueberry pancakes, blueberry pie, or blueberry muffins, chances are the delicious fruits came from Maine. Not only that, but they were helped along by the Maine Wild Blueberry Tax. This tax imposes 1.5 percent tax on every pound of wild blueberries sold. The money is used for investment and research that keeps Maine's hugely successful blueberry business thriving.

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 11 Oddest Things America Has Ever Taxed

Tim Lemke — Fri, 01 Apr 2016 09:00:12 +0000

Taxes: No one really likes them. But they are something of a necessary evil if we want a functioning society.

That said, there are some taxes that seem objectively bizarre, often because of the item or activity that is taxed, or the seemingly inconsistent way it is applied. From bagels with cream cheese to cocaine cash and candy, here are some of the strangest things America has ever taxed.

1. The Kansas Balloon Tax

What's considered transportation, and what's considered "amusement?" That's the question when it comes to balloon rides in Kansas. If you're in a hot air balloon but it's tethered to the ground, the experience is taxed at a rate of 6.5%. But the Tax Foundation reports that if the balloon is set free, it means you're traveling from one place to another (technically considered "air commerce") and therefore the ride is tax-free. This tax also applies in Missouri and Wisconsin.

2. The Texas Belt Buckle Tax

Many states do not tax purchases of clothes. And Texas is one of these states — but your big Longhorn belt buckle doesn't apply. That's because, according to Pew Charitable Trust, the buckle is considered an "accessory, similar to a piece of jewelry." So add the Texas sales tax of 6.25%, and possibly 2% more in local taxes.

3. The Prepared New York Bagel Tax

If you're in New York, a bagel by itself is exempt from tax. But if you slice a bagel or smear anything on it, then it's a "prepared food" that's subject to an 8.875% sales tax. So keep that in mind the next time you want some cream cheese on your bagel. Americans for Tax Reform has called this tax "ludicrous."

4. The Inconsistent Candy Tax

It seems reasonable that a state might tax candy. But when is candy not candy? In Illinois, candy is taxed unless it's made using flour. (Because candy is, according to some criteria, defined by the absence of flour as an ingredient.) This means that a chocolate bar is not taxed, but a KitKat bar or Whopper malt ball is subject to taxation. Try keeping track of all this during Halloween and Easter.

5. The Goatee License Fee

In Massachusetts, there's still an old law that says a man can't wear a goatee unless he pays a fee to obtain a special license. Something tells me this law is no longer enforced. But maybe it's a good thing that full beards have made a comeback.

6. The Illegal Drug Income Tax

The Internal Revenue Service's actual written guidelines state that "Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040)." In other words, they expect you to pay taxes on any money you earn from doing things you shouldn't be doing. One wonders how much revenue the government has received due to this provision.

7. The Tax on Cup Sleeves and Lids (But Not Cups)

In Colorado, a cup is considered "essential food packaging," and is therefore exempt from tax. But the lid can be taxed. Same goes for the cup sleeve, if you want to protect your hand from hot coffee. And the coffee stirrer? That's taxable.

8. The "Rain" Tax

Okay, this is actually a bit of a misnomer. It's actually a tax or fee on homeowners to cover the costs of pollution from stormwater runoff. This was implemented in 2012 as part of an effort to prevent pollution from streaming from rooftops and into the Chesapeake Bay. Officially, it's known as a stormwater management fee, but opponents came to call it the "rain tax."

9. The Vending Machine Fruit Tax

In California, fruit is tax exempt. Unless it comes from a vending machine, in which case there's a 33% tax lumped on. This appears to be an unfortunate byproduct of the state looking to move people away from unhealthy vending machine foods like potato chips and candy bars.

10. The Alabama Playing Card Tax

Maybe there's a reason there aren't any casinos with table games in the Heart of Dixie. Up until last year, the state added 10 cents to the purchase of any deck of playing cards, a leftover of so-called "sin taxes" to discourage things like smoking, drinking, and gambling. What's interesting is that the tax law specified that the tax applied to decks of 53 cards or fewer, thus exempting cards for UNO and other similar games.

11. The Texas Strip Club Pole Tax

This made headlines in 2007, when Texas sought to install a $5-per-patron fee for entry into a business that has live nude entertainment and serves alcohol. The "gentlemen's club" industry argued that the tax was unconstitutional on free speech grounds, and others argued that it amounted to an illegal occupation tax. Courts have ruled against the clubs.

What's the strangest tax you've ever heard of? Please share in comments!

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What’s Congress Up to? 4 New Measures that May Affect Your Business

Barbara Weltman — Mon, 21 Nov 2011 19:26:13 +0000

Link:

http://www.openforum.com/articles/whats-congress-up-to-4-new-measures-that-affec...

While some people are complaining that Congress has done nothing, there has been some recent activity on measures that can impact your business. Some changes are good, while others may have an adverse effect. Here is what you need to know.

1. Repeal of Withholding on Government Contractors

The 3 percent withholding on payments for goods or services of more than $10,000 to government contractors, that was scheduled to take effect on January 1, 2013, has been repealed by the Withholding Tax Relief Act of 2011. However, withholding continues to apply to contractors who fail to pay their taxes.

At the same time as Congress repealed this harsh rule, it created two new tax credits to incentivize businesses to hire vets:

A $5,600 tax credit for each veteran who has been unemployed for at least six months;
A $9,600 tax credit for hiring an out-of-work veteran with service-related disabilities.

Both credits, which are part of the Work Opportunity Credit, apply through 2012. If your business hires an employee that would entitle you to the credit, be sure have the new employee complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit and submit it to your state workforce agency within 28 days.

2. Tax on Telecommuters

Today, more and more businesses allow employees to telecommute. This can be a win-win for you and your employees. You save on space and increase employee productivity, the employee is freed from the time and cost of commuting, and the community benefits from reduced traffic and fuel emissions.

At present, telecommuting from another state can result in additional state income taxes for teleworkers.

The Telecommuter Tax Fairness Act of 2011 would prevent states from imposing individual income taxes on telecommuting nonresident individuals who are actually physically present in another state. Thus, if your company is in New York and your workers telecommute from Connecticut, New Jersey, or any other state, your workers will escape New York taxes.

The measure has bi-partisan support and is also supported by various groups, including the Telework Coalition, the National Taxpayers Union, the Small Business & Entrepreneurship Council, and the Association for Commuter Transportation. However, a similar bill failed to be enacted in the past, so we’ll have to wait and see about enactment.

3. Sales Taxes on Wireless Devices

Currently, state and local taxes and fees on wireless devices average about 16.3 percent, compared with 7.4 percent on other goods and services. The disparity could get worse as cities and states continue to look for new sources of revenue and businesses rely more and more on wireless devices.

The Wireless Fairness Act of 2011 (H.R. 1002), passed by the House on November 1^st, would prevent states from imposing “discriminatory” taxes on wireless devices (taxes on wireless devices are double what they are on other goods and services). This would be accomplished by means of a five-year moratorium on any new taxes and fees on wireless devices.

The measure is favored by businesses as well as service providers such as AT&T and Verizon. It is opposed by cities and states that continue to need the revenue. Let’s see if the Senate can pass this quickly.

4. Sales Tax on Online Sales

Sales tax for online purchases is a complicated matter, with many small businesses unclear about their collection responsibilities. Generally, states cannot collect sales taxes from online retailers that do not have a physical presence within the state. The definition of “physical presence” (or “nexus”) has been expanding as states seek to increase the scope of collections. It can, for example, include not only having a sales force in another state, but also warehouses, shipping facilities, and other connections.

The Marketplace Fairness Act would create the first national authorization for states to collect online sales tax. The bill likely will exempt “small businesses” (defined in the bill as those with online revenue under $500,000). The exemption amount may be changed in a final bill, which likely won’t happen until next year (after this year’s holiday sales season).

Amazon, which had $34 billion in online sales last year, has come on board to support the measure. Some small business groups, as well as eBay, oppose it because of the added administrative cost it likely will entail. However, in the end, it would mean that whether a business operates locally or across state lines, it would collect sales tax on its goods and services.

Final Word

Stay abreast of developments on the federal and state level that can have an important impact on your business. You can keep tabs on developments that may affect your business through the National Federation of Independent Business.

This article is from Barbara Weltman of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What You Need to Know About Online Sales Tax

Thursday Bram — Sat, 11 Jun 2011 01:31:33 +0000

Link:

http://www.openforum.com/articles/what-you-need-to-know-about-online-sales-tax

Figuring out online sales tax can be something close to a nightmare. It used to be that everyone "knew" that online shopping was tax free. These days, though, crossing a state border can make a world of difference in your level of obligation. I get a little worried just thinking about it because while the IRS isn’t concerned about sales tax, state tax bureaus are — and they can be just as aggressive in tracking down money they consider theirs.

It’s not impossible to untangle the online sales tax mess, but the risks of getting it wrong make a visit to a local tax professional a wise move. You can get a headstart by taking a look close to home.

Your State’s Laws

One of the biggest difficulties when it comes to handling online sales taxes is that there’s no single set of rules in place to cover every state. Naturally, then, the first place to start untangling is in your own state.

In Maryland, where I live and operate my business, I’m expected to collect sales tax on all sales made within the state. According to the state comptroller’s office, anyone who maintains a nexus, or place where business operations occur, within the state is also expected to collect sales tax — but there is no single resource for out-of-state sellers who happen to sell online.

In most cases, you’re under no obligation to collect sales tax for states where you don’t have a nexus. That usually means an office, but (depending on the state) can also include a warehouse or business trips on a regular basis into the state for the purpose of conducting business. Those rules are based on a Supreme Court decision about mail order purchases. A good general rule is that if you aren’t doing anything else in a given state besides shipping to a buyer, you don’t need to pay sales tax. For instance, when I sell an ebook to someone outside of Maryland, I don’t need to charge sales tax because Maryland is the only state where I have a presence.

Unfortunately, there’s no guarantee that the situation will stay this simple. Even if you aren’t planning to eventually expand your business’ presence to other states, you may find yourself expected to collect sales tax for all online purchases if certain state governments have their way.

Your E-Commerce Software

It’s also important to consider what sort of software you’re using to handle online sales. Many of the simpler online shopping carts have only basic sales tax functionality, leaving you to figure out the details on your own. But some allow you to set sales tax rates for buyers who list a specific state in their information. While sales tax wasn’t the most important feature I was looking for when I chose the shopping cart tool that I use on my websites, I was pleasantly surprised to find that the software handles sales tax readily and it generates reports that let me cut a check to the appropriate tax agencies.

If you’re not sure on how to configure your shopping cart for sales tax collection, it may be worth bringing in some outside help to get your tools in order. Virtual assistants who specialize in setting up shopping carts can often help. You will need to be able to supply an idea of how much sales tax you need to charge, which may require some digging if you live in a state where sales tax rates differ by county or municipality. Most shopping cart software developers employ support staff who can help you, too.

Stay Aware of Changes

Sales tax questions are going to remain difficult, especially since online sales tax has yet to be ironed out with a universal answer. If selling online is a major part of your business, it’s important to stay abreast of the discussion, both in your own state and in any states you have customers in. The alternative can be a tax bill with plenty of fees and penalties added on.

Check your state’s comptroller’s office or revenue service to see if they offer mailing lists or other notification services. Many CPAs provide newsletters or blog about tax rules in their local areas – you may want to ask any tax professionals you’re already working with about the sources they use.

In many states, sales tax is a key revenue source, which pays for schools, roads, and other public services. Those states are likely to look for opportunities to make an end run around the Supreme Court decision which effectively removed any responsibility for online sellers to collect sales tax in states they don’t have a presence in. With that end in mind, twenty-three states have already streamlined their sales tax collection process and more are moving in that direction. With so many states backing the effort, it seems possible that there will be a requirement to collect sales tax nationally, eventually.

This article is from Thursday Bram of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Internet Sales Taxes Question as Thorny as Ever

Thursday Bram — Sat, 02 Apr 2011 20:15:37 +0000

Link:

http://www.openforum.com/idea-hub/topics/money/article/internet-sales-taxes-ques...

With more and more businesses selling at least some of their products and services over the Internet, how to collect and report sales tax is becoming more and more complex. In the past, when a business made most of its sales to someone living in the same state – if not the same city – keeping up with sales tax was a matter of making sure you met your state's requirements and cut them a check. But if you're selling to buyers who could be located anywhere they can get access to the Internet, handling sales tax can require you to be an expert of the rules for each state in which you do business – and possibly even a few foreign countries, too.

Beyond Sales Tax Assumptions

One of the most persistent assumptions about handling sales tax on purchases made over the Internet is that the seller simply doesn't have to deal with sales tax. While that's true in some situations, it certainly isn't universal.

Jason Shinn, an attorney specializing in ecommerce, describes the sales tax landscape:

First, in states that impose a sales tax, a buyer is obligated to pay that sales tax due on Internet purchases to the same extent an item would be taxable in an actual store. The common belief is that most people do not remit the sales tax that would be due, thus depriving states of a significant amount of tax revenue in the aggregate.

Second, an e-commerce merchant may have an obligation to collect the applicable sales tax on Internet sales if that merchant operates within the state. This is because courts have interpreted the Commerce Clause of the U.S. Constitution to prohibit a state from requiring an out-of-state- merchant to collect sales tax on Internet sales made to in-state residents, unless the merchant has a substantial physical presence in the state.

"Third, states have taken the position that an out-of-state seller has an in-state presence if it uses third parties to make sales. So in-state businesses that earn revenue through affiliate relationships, e.g., an individual clicks on website that links to online retailer such as Amazon.com ,would create an in-state presence for that online retailer. This expansion is obviously targeted at big online retailers like Amazon.com, which has numerous such affiliate arrangements. In fact Amazon.com recently announced it was ending such relationships for a particular state rather than be held liable to collect that states sales tax on Internet purchases.

"So for this reason it is important for e-commerce merchants to understand their Internet sales tax collection obligations and how those obligations may change depending upon their physical operations and third-party contracts with affiliates. This is especially true in light of the significant deficits many states face and the need to find revenue to cut those deficits.

Understanding Nexus

Most businesses have a home base – some location that is used to determine where the company is licensed and where it pays taxes. Typically, you can expect to pay your income tax and sales tax for local purchases to the state where you're based. But with online sales, there can also be a question of 'nexus' – whether or not you have a presence in another state that could be used as justification to require you to collect sales tax, there.

Scott Newman, of US Markerboard explains the concept of nexus: "Basically do you have a ‘presence’ in that state? If you send a sales rep into a state to visit a client, you have now created ‘nexus’ and could very well be on the hook for income tax, which will lead to you collecting sales tax. States are now targeting manufacturers that drop ship products on behalf of out of state internet dealers. The manufacturers are now collecting sales tax from the dealers, but because the dealer is not registered in the particular state with which the shipment is going, they cannot collect back or get reimbursed from the buyer for the tax.”

The On-Going Question

The sales tax question is only going to get more complicated as states search for revenues. Newman points out, “First, states are becoming much more creative in how they ’find’ the sales and use tax that is due them. For example, there are states such as New Jersey where you must register to do business there or you can't receive payment from a public school. And although the public school is tax exempt, they now have you registered and could very well be liable to collect sales tax."

The issue is far from settled, and states are coming up with their own legislative solutions. Something as simple as requiring online sellers to collect sales tax can have far-reaching impact, like leading tax collectors to consider whether a business should pay income tax as well, since they're already collecting sales tax.

For small businesses, it's important to stay on top the issue. It's a good idea to consult with an ecommerce or tax professional to get a more in-depth analysis of your business' sales tax compliance needs. Don't expect the solution to be simple, at least not until Congress legislates a uniform system suited for Internet retailers big and small.

This article is from Thursday Bram of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Tax Penalties You Can Easily Avoid

Barbara Weltman — Thu, 24 Mar 2011 22:02:24 +0000

Link:

http://www.openforum.com/idea-hub/topics/money/article/5-tax-penalties-you-can-e...

Would you toss a wad of cash into the wind and watch it fly away? Probably not. So why would you incur tax penalties that cost you money and aren’t even tax deductible? You shouldn’t. Avoid these five tax penalties and you won't be caught watching your hard-earned money flutter away.

Late Filing Penalty

There are fixed deadlines for filing various tax returns and penalties for missing these deadlines. For example, if you fail to file your personal income tax return on time (this year it’s April 18, 2011), you are subject to a late filing penalty. The penalty is 5% of the tax due for each month you’re late, up to a maximum of 25%. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or 100% of the tax due. For partnerships and S corporations, the late filing penalty is $195 for each month or part of a month the return is late, multiplied by the total number of owners during any part of the year, up to a maximum of 12 months.

How to avoid the penalty: If, for any reason, you cannot file on time, request a filing extension by the return’s due date. For individuals and partnerships (including most limited liability companies), the filing deadline for the 2010 return is April 18, 2011.

Individuals (including sole proprietors and one-person limited liability companies) can request a six-month extension (to October 17, 2011) on Form 4868.
Partnerships can request a five-month extension (to September 15, 2011) on Form 7004.

The filing deadline for corporations (both C and S) is March 15, 2011. Corporations can request a six-month extension (to September 15, 2011) on Form 7004.

Late Payment Penalties

Federal income tax is due on the return’s original due date, regardless of any filing extensions. The late payment penalty is 0.5% of the tax due; the maximum penalty is 25%. In addition, there are interest charges for late payments.

How to avoid the penalty. Pay the tax on time, even if this means requesting an installment payment agreement on Form 9465 or by charging the outstanding amount to a major credit card (find authorized credit card processors).

If you fail to pay on time, you can still avoid the penalty by showing reasonable cause for the lateness. Reasonable cause includes having paid (through withholding, estimated taxes, and additional payments) at least 90% of the taxes due.

Estimated Tax Penalties

If you are self-employed, you probably need to pay estimated taxes to cover your payments for the year. Payments are due four times each year; you cannot wait until you file your return to make a single payment. If you fail to pay minimum amounts, you are subject to underpayment penalties. Essentially, this is an interest charge that is adjusted each quarter. The rate for the second quarter of 2011 is 4%.

How to avoid the penalty. Figure estimated taxes based on one of two safe harbors by paying the following amount over the four installments:

At least 90% of the taxes due for the current year.
At least 100% of the taxes shown on the return for the prior year (110% if your adjusted gross income in the prior year was more than $150,000 or more, or more than $75,000 if married filing separately in the current year).

Note: Different percentages apply to farmers and fishermen. Consult a tax professional.

Late Employment Tax Deposits

If you have employees in your business, you have certain payroll tax responsibilities. This includes withholding income taxes and the employee share of FICA (Social Security and Medicare taxes) from their paychecks as well as paying the employer share of FICA and the FUTA (federal unemployment tax). If you fail to deposit these taxes with the government on time, or if you deposit less than the full amount owed, you are subject to a penalty ranging from 2% to 15%; the quicker you make the late deposit, the lower the penalty rate will be.

How to avoid the penalty. Make deposits using EFTPS.gov, which is a free electronic payment system. You can schedule your payments in advance so that they are automatically transferred from your bank to the U.S. Treasury on the due date.

Note: Very small employers – those permitted to file Form 944 because their annual payroll taxes do not exceed $2,500 – can pay the taxes with their annual return.

Late Sales Tax Deposits

If your state levies sales taxes, you must collect them and pay them in a timely manner. Each state has its own rules regarding payments and penalties. Even though you do not actually pay the sales tax – your customers do – you must transfer the funds to your state or face penalties.

How to avoid the penalty. Learn about your sales tax obligations from your state.

Late Information Returns

In the course of your business, you are required to provide various information returns, such as 1099s, to the IRS and to service providers and others. If you fail to do so and do not have reasonable cause for the failure, you are subject to a penalty. The longer you fail to file or submit full information, the greater the penalty (explained in instructions for certain information returns).

How to avoid the penalty. Learn which forms you are required to file. If you discover that you failed to submit a form on time, correct your mistake as quickly as possible to minimize penalties.

Bottom line

Work with a knowledgeable tax professional who can help you meet your filing obligations and avoid penalties. Money spent avoiding these and other tax penalties is definitely not money thrown into the wind.

This article is from Barbara Weltman of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Internet Sales Taxes Could Change Your Business

Tom Harnish — Thu, 13 Jan 2011 18:42:49 +0000

Link:

http://www.openforum.com/idea-hub/topics/money/article/internet-sales-taxes-coul...

With federal and state budgets in deep trouble, lawmakers are looking for ways to increase the money coming into their tills. Sales taxes are about a third of total state tax collections, second only to personal income taxes as the largest source of state revenue. But the Internet Tax Nondiscrimination Act (P.L. 108-435) means states don't collect taxes on any out-of-state online transactions.

If you have a business in California, your website shopping cart is only required to collect taxes from people who use a California address. Or, seen from the other side of the process, if you live in California and buy from an online retailer in Vermont, you don't have to pay sales tax on your purchase.

Technically, customers in other states who buy from you are supposed to pay use taxes (and you're supposed to pay them when you buy out of state), but trying to enforce that is complicated and virtually impossible, pun intended. The reason is something called "nexus," or physical presence, a concept that originated with the very first use taxes 80 years ago during the Depression.

New York State decided to apply the idea to the Internet with what has become known as the Amazon Law. New York claimed that commissions Amazon paid to Empire State affiliates meant it had nexus in the state, and thus was required to collect sales tax. The state legislature passed a law supporting the claim. Amazon challenged in court and lost, but it is appealing on the basis that the affiliate relationships were simply is a means of advertising.

When North Carolina and Rhode Island passed laws similar to New York's Amazon law, Overstock.com (and Amazon) canceled affiliate programs in those states, putting some online retailers out of business. Fortunately, California, Hawaii, Colorado, and Virginia have defeated proposals to tax Internet sales. But other states, including Oklahoma, are going ahead with Internet tax measures based on nexus.

States such as Nevada, Florida, and Washington rely on sales taxes in lieu of a state income tax, so they have a keen interest in the issue and are working to broaden the definition of nexus.

Still, the lack of sales-tax and use-tax enforcement is attractive to online shoppers, proven by the 20% annual increase in online sales. With that kind of growth it's no surprise that there's a push for new tax legislation through the Main Street Fairness Act. The Act calls for an online sales tax to ensure online stores have the same tax regulations as retailers.

How this all plays out, we can only hope, will be based on business realities, not just legislative avarice.

With something like 7,500 unique tax jurisdictions in the United States, keeping track of changing tax rates will be a job that only a central service or software provider will be able to handle. But the problem is more complicated than that. Some states, for example, don't tax software and other digital products while others do, but they have lower tax rates for prescription drugs, clothing, and food.

Unless special Internet sales exemptions are provided, a seller would have to register in every state where it sells its products or services. For that matter, as it stands, sellers would have to register their businesses in every county, borough, parish, city, or town where they have customers. They’ll have to keep tax records for each jurisdiction too, of course, and make them available in the event of an audit...from any one of 7,500 regimes.

But Internet transactions aren’t the only ones under scrutiny. Catalog sales and interactive-TV sales raise nexus issues too. Even postcards inside magazines that a purchaser mails in to order a product raise nexus issues because the cards have codes that track sales back to the magazine.

In any event, unless a solution is found, your business could find itself in the unfortunate position of selling competitive products that cost your customers as much 8.25% more than other online retailers, simply because you have to collect state tax and they don't. Your choice, of course, is to reduce your price, but that means narrower margins.

One approach to solving this problem was the Streamlined Sales Tax Project (SSTP), created by the National Governor’s Association and the National Conference of State Legislatures in the fall of 1999 to simplify sales tax collection. The leaders of those two organizations were concerned that the 1930s sales-tax approach is just not relevant to 21st century e-commerce. So far, 44 states and the District of Columbia have adopted the approach which encourages "remote sellers" selling over the Internet and by mail order to collect tax on sales to customers living in the streamlined states. It levels the playing field so that local "brick-and-mortar" stores and remote sellers operate under the same rules.

But, according to Scott Peterson, executive director of the Streamlined Sales Tax Governing Board, "people have lost their enthusiasm and patience for the Streamlined Sales Tax project." Why? George Isaacson, representing the Direct Marketing Association as senior partner at Brann & Isaacson, said at a recent conference (mp3) that it was, at least in part, because SSTP had backed away from simplicity.

With states losing billions of dollars in revenue, it's a safe bet they’ll use whatever legal authority they have to chip away at the nexus issue. The unanswered question is whether the federal government will step in to defuse the issue, or at least make it equally painful for everyone.

This article is from Tom Harnish of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Would You Shop Locally at 10+ Percent Tax?

Carrie Kirby — Wed, 02 Jul 2008 02:32:00 +0000

Today the sales tax in Chicago went up to 10.25 percent after a 1 percent hike in the Cook county rate.

The change has me thinking seriously about how much I can afford to pay to maintain the ideal of shopping locally.

I can't say I'm a paragon of local shopping, but if I have the opportunity to get into the stores in my suburb, Oak Park, or a few blocks away in Chicago, I do it. I certainly see the value in helping local stores stay afloat so they're around when I need them. In the past few years we purchased such big-ticket items as a replacement wedding band and a dining room set at local shops.

But when you're talking about TEN PERCENT of your purchase price going to the tax man, online shopping suddenly looks even more attractive. It's not like you're saving a few pennies by going online to a site that doesn't charge any tax. (And yeah, I know you're supposed to keep track of all those tax-free transactions and report them to the IRS, but I also know that most people don't.) Buy a $20 book tax-free and you save $2. Order a $500 bookshelf with free shipping, as we recently did, and you save a whopping $50.

I have to admit that this change will change my shopping habits. Most groceries are not taxed, of course, but alcohol is, and this will probably push me to stock up on wine and beer at Woodman's when we're up in Wisconsin visiting family. What other changes will we make? Eating out just got that much more prohibitive. And yes, when I'm Christmas shopping this year, I will probably make most of the purchases online.

It would be one thing if I felt that my sales tax money was going to support important local services and infrastructure. Like if I thought my extra dollars would make the El run safely and smoothly. Those of you from the Chicago area can take a moment to laugh. Cook county's waste and corruption are well known, and I heard citizens of the county's suburbs on the radio today say they feel that what "good works" county taxes do fund are concentrated on the city.

It's clear that most of my neighbors aren't going to feel any guilt about depriving the county -- and, incidentally, our individual towns -- of revenue by shopping elsewhere. I won't waste any guilt on the government hangers-on whose salaries won't be paid with my money either.

I do feel bad about those local merchants, though. It's a dilemma.

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The State Sales Tax Holiday is coming...

Paul Michael — Fri, 06 Apr 2007 22:45:58 +0000

...if you're lucky enough to live in Tennessee. Yep, April 27th to Aprii 29th is State Sales Tax day for the fortunate folks of Tennessee, introduced as a way to help families save money on essential supplies for back-to-school shopping.

You can find out all of the details at www.tntaxholiday.com , a website dedicated to the special tax-free holiday.

But if you live in Tennessee (or happen to be passing through) don't rush out and buy a 60" LCD TV hoping to save yourself a few-hundred bucks in taxes. As the back-to-school title suggests, this only really covers supplies that will help out the kids.

BUT, if you've been planning to pick up a new PC for the family, now may be a great time to open your wallet and run down to Circuit City or Best Buy. With a $1500 ceiling on the price of a new PC, you can pick up a very nice machine and pocket the state taxes for much-needed software.

What is covered?

Clothing with a price of $100 or less per item
School supplies with a price of $100 or less per item
Computers with a price of $1,500 or less per item

As long as you stay within these guidelines, you can save yourself a tidy sum over the tax holiday weekend. No exemption certificate is required, so go nuts. But please, not too nuts. We don't need any more people running up nasty credit card bills (see my report on that here) .

Other states

There are 13 other states, plus the District Of Columbia, that have enacted sales tax holidays. Among them are Iowa and Texas, and this year they hold their sales tax holiday at the beginning of August. Your local state website should have information for you on whether on not you're one of the lucky states that have this holiday, and when it actually takes place. Keep your fingers crossed.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: