Reporting Exempt Sales Tax
Unless a business is totally exempt from paying sales tax, each business is required to pay collected sales tax and report sales that were exempt from sales tax.
Based on the volume of the business, this is most commonly done either monthly or quarterly by using a sales tax reporting form. Once a business has received a sales tax identification number, the state determines the frequency of reporting and issues sales tax reporting forms.
While businesses are not required to submit their sales tax exempt forms (they are only exchanged between businesses and vendors but must be kept on file), they are required to report the number of both collected sales tax and sales that were exempt from sales tax.
Say a bookstore business sold 10 books to customers who paid the appropriate sales tax and the total sales tax collected for a month was $100. In that same month, the book business purchased from its book supplier 5 books worth $50. On the sales tax reporting form, in most state, the amount of exempt sales tax is determined using the following method:
- Total Sales for the Month - $100
- Total Exempt Transactions - $50 (this is what the business paid to the vendor)
- Total sales minus total exempt transactions - $100 - $50 = $50
- The business owner would pay the appropriate sales tax percentage on $50 for the reporting month.
Using sales tax exempt forms and the laws for reporting and paying sales tax is different in every state. For example, in New Mexico, the sales tax reporting form is also used to report and pay the amount of state tax withheld from each employee's pay and must also be submitted along with the appropriate sales tax due. To determine the laws for your state when you have a new business or buy an existing business, contact your state’s taxation and revenue department. Most taxation and revenue departments have online services that will enable you to apply for a sales tax identification number, obtain non-taxable transaction certificates, and forms to report and pay your sales tax.
Image Credit: Screenshot Sales Tax Exempt Form: (http://www.mansfieldelectric.com/consumerforms/form_st5a.htm)