Sales tax

[George N. M.]

Dear All.

OK, I'll try this as a new thread.  I raised this issue earlier but it got swamped in a discussion of consumer psychology, food safety, and the layout of supermarkets.

How many folk, either the occasional craft show merchant or the full time smith doing thousands of dollars business per year actually go through the hassle of charging and submitting sales tax to the local state, county, or municipality?

There was a time when I just flew under the radar and didn't charge sales tax on the theory that I was too small a fish to get caught in any enforcement net and I didn't want the hassle of making change down to the cent.  With experience and having worked for local government I have signed up for a state sales tax license and submit my quarterly or annual reports and checks.  In my state the state collects everything and sends the local government portion back to the cities, towns, and counties.  In other places it can be the reverse.  This eliminates a low legal risk and makes me feel that I am doing my bit and not cheating anyone of anything no matter how small.  Also, some events specifically require that the merchants charge sales tax and require a sales tax number to reserve booth space.

There are, of course, two ways of charging sales tax.  One is the traditional way of adding X% to the sales price to the customer.  the second is to charge an even amount of $Y and then subtract X% after the sale and submit it.  There are arguments for both approaches but I sort of feel that the first is a tax on the consumer, collected by the merchant which is the legal theory of a sales tax and the second is a tax aon the merchant.

Finally, having a sales tax number allows you to purchase materials which are going to be resold without paying sales tax yourself on those items.  And you can often get into wholesale only situations with a sales tax number.

What I have not done is get into internet sales and charging out of state sales tax.

What have others done and what is your thought process for whatever strategy you take regarding sales tax?

I realize that this is primarily for the IFI participants in the USA but I'd be interested in what the smiths in other countries have to do regarding sales tax or Value Added Tax (VAT).

"By hammer and hand all arts do stand." 

[CrazyGoatLady]

George, I'm glad you brought this up in separate conversation. I got caught up in the in the last one and I didn't even see your post till later on. I know very little about this subject. My father in law is Ag exempt and that saves him money on purchases if nothing else. It never crossed my mind until you mentioned it that you can save the sales tax on buying materials with a sales tax number. We are looking at having to get one soon. We plan to to sell eggs and chickens ( meat birds) at farmers markets. Hmm, if I could sell forge work at these same kinds of events, I wonder if it could be an all for one, or if I'd have to get a separate tax number for my smithed items? Forgive my ignorance, but you have given me something to think about. Thank you

[George N. M.]

Dear CGL,

It would depend on how Texas sets up its sales tax license system.  Some states have a class of license for occasional vendors and a different type for regular brick and mortar retailers.  There may be reporting and remitting differences.  Check the internet, probably under the website for the Texas Department of Revenue or a similar name.

The exemption from paying sales tax is supposed to be for what will be resold so that it isn't taxed twice.  Probably, it would not, or should not, apply to, say, forge fuel or anything else that is consumed in the manufacturing process.

There may also be different sales tax rules for selling agricultural products.  I know that some states do not charge sales tax on food.  In some there is a difference between "raw" food and prepared food, e.g. a sandwich or burrito, which can be consumed immediately.

As I said, check for the peculiarities of your own state's sales tax scheme.

"By hammer and hand all arts do stand."

[G-son]

Here in Sweden we have what I think is called value added tax in english. Prices on display for "regular people" ALWAYS has the VAT included, so they know exactly what they have to pay. Companies that sell to other businesses often show prices without VAT - the buying business still has to pay the VAT, but in general they get it back (and add VAT on the price they sell it on for).

It might be because I am used to it, but I think prices should always be clear what you will actually pay. 

[Steve Sells]

I just post a price with tax included. charging even dollar amounts and  take the tax out is easier ar the Ren Faires and other shows I do, avoiding the small change. On the internet sales I have to llist sales tax separately to humor the govt so they know I am collecting it, and those out of state or with tax numbers are easier to deal with as well.

[Daswulf]

George, I meant to reply to you on my thread but figure it's better here at the moment. 

For now I am still small potatoes. I had considered getting a tax id at the beginning of this year but wanted to track to see how things would go. I'll be looking more into it over the winter and consider getting one this year. That kind of stuff is really difficult for me to understand so I'll be talking with some more knowledgable people to figure it all out. 

 

[JHCC]

Das, I'm sending you a PM about this.

[Daswulf]

Thanks John.

[CrazyGoatLady]

Thanks for the information George. I'm with Das. It's a bit hard for me to understand these things. My husband has a much better grasp on these kinds of things than I do thank God. 

[Hans Richter]

Dear all, as you may know, in life only two things are inevitable, "Death and Taxes." All this is beautifully portrayed in the nice Hollywood movie "Meet John Black" with Brad Pitt.

In Belgium, the tax system is almost identical to the description of G-son, so you charge VAT (in our case 21%) for every sale you have made, and you can reclaim VAT for every investment (material, tools, current costs) on which you yourself paid VAT as a company for your company.

However, pay attention !, the moment you have a VAT number / ID, the tax authorities also want to share in your profit, so that is your "income tax" that you have to pay to the state.

And now it becomes complicated and brings us back to a theme that is currently being discussed in a different current thread, the "cost price" and the "selling price" of your work. I think that among the members at IFI are enough wise experts who can explain this in great detail. However, I only try to give an explanation according to a healthy common sense.

To be able to act completely legally, you must therefore be able to calculate a cost price for your work, which usually includes the material costs, the fixed costs (energy, rent / depreciation of machines / workshop, consumables) an hourly wage for yourself, and others. Pay attention to the fact that your material costs are also linked to certain actions and activities that always cost time and money, so that your material may not be invoiced on a one-to-one basis.

Back to income tax, depending on the country you are working in, ‘father state’ asks at the end of the year an income tax on the "profit" that you have made with your company, ( that are per country between ? and 50% from your wallet and income that you have made this year. So the pennies that you earn from the stock exchanges and sales (and with VAT ID) do not act as pure profit and as owner of a business will immediately spend it fully on only nice private things which brings me back to the first slogan of this post.

An option (and my way to finance a precious hobby) to keep the income tax as low as possible is to immediately demonstrably reinvest all the profits (income) you have made from sales (invoice) in equipment and material for your company, You do not have to pay income tax or income tax on this and you can also reclaim the investment tax.

In the long term, however, you will have to think about a profit margin (X-number% extra amount of money, this is just according to supply and inquiries between 15 and 50%) that you have to pass on to your customers above the cost price in order to eventually (and if nothing to invest more) to pay to the tax authorities (But also listen to eventually tips in PM’s or from your future accountant ).

I (for my case and in a densely populated region), have a VAT and company number and take into account the VAT movements and steps mentioned.

Unfortunately, there are always jealous people who suddenly see that new trailer in your back yard, the new truck, or the new roof of your forge, and are willing to tip the tax authorities over your possible additional sources of income and then read the first slogan in this post again .

For those who occasionally refuse a nice little subject for a few dollars at an annual fair, no item at all -go on quietly. However, for those who make a few (ten) thousands of dollars a year through running a semi-professional shop and who regularly receive public / neighbour interest and / off social media, this may be is a reason to just take a VAT number with the associated hassle.

Hope to have made with this my humble and simple contribution to this subject. Cheers, Hans

[Kozzy]

I'm  in a little different situation (fabrication) but some of this applies.  We lean toward only selling through resellers so that sales are tax exempt and the other guy has to deal with it.  We do some out of state sales in CA where if your runny nose drips on the state you are considered to have a nexus for taxes--and it's a royal pain because you have to keep track of things like the local RTA tax...and a block difference in location might mean a different sales tax rate.  Some other states (TX for example) nail you a HUGE fee for out of state registration so you never want to risk being nailed as having a nexus there (and it's becoming fluffier--"regular sales" within an area can be enough to call it a nexus).  If you have a regular guy who sells for you in a state that can also constitute a nexus so your brother in law selling your stuff in Michigan might be putting you in harms way for sales taxes.

So..personally, I'd do in person sales (fair booth for instance) with tax included so that I didn't have to figure it with each sale.  I'd do mail order/internet sales though a portal that figures tax for me (plausible excuse if a problem comes up).  And I'd do bigger stuff through resellers for the most part--such as through a contractor if there was lots of fence, railing or something similar that would best fit under a contractor's license.

[jlpservicesinc]

When charging tax.. I always do what the item costs and the tax is on top.. NO hidden taxes included. 

I charge what I charge for any given forged item and as such the price is the price..  Taxes are separate.  It also makes it easy to figure out what the collected tax burden is and can put that into a separate account for wire transfer. 

[Irondragon Forge ClayWorks]

A good accountant is worth their weight in gold. When we had the business of selling pottery & blacksmithing items we did have a tax number. It was in my wife's business, a hair & beauty salon. Our accountant figured out a way to use that tax number for the Iron Dragon forge and Clay works using a DBA (doing business as) and we had no problems like that but did have to pay the taxes on all sales as materials and such were purchased tax free.  Of course Arkansas has some weird tax codes/laws.

[jlpservicesinc]

All states do have weird tax codes..  I'm a member of the updates the MASS irs sends out so I get all the new updated laws on the books.  it's crazy what actually goes throw and what the reading of them is like..  With inclusions and exclusions and what is or is not included with this update vs older code of the same number.. 

DBA's can get away with a lot of things others can not.. While the laws on the books are heavily regulated there is a lot of sloppiness as lots of it is self governed.  But, having a working knowledge of what or why and how is important when you start messing with a "Sales and Use" tax number.    

[ThomasPowers]

"Never make a mistake accidentally".

[rockstar.esq]

George,

As an estimator, I've seen a lot of situations where people's fondness for percentages and "round" numbers led to mistakes in judgement.  

I think it's critical to "do the math" for whatever it is you're pricing.  If at that point, you want to adjust to an even dollar amount, at least you'll know the impact it will have on your bottom line.  Bear in mind that just the tax difference from one city to the other might be significantly more than you'd originally set aside for profit. It's also worth mentioning that hagglers are pretty common at trade/craft shows.  Most of them won't buy at the posted price as a matter of principal.  I've met quite a few who will haggle the total down, then say "no tax" as they're going to shake your hand!

I also think it's important to point out that there are use taxes which apply to materials and rental equipment when the seller installs the widget.  Most municipalities will collect these use taxes along with their review fees before issuing a construction permit.

 

[George N. M.]

Dear Rockstar,

My usual response to hagglers is that I don't haggle and that I price my items by how much time I have in a particular item.  If I accept less I am saying that my time and skill are worth less than I have already established.  I have never or seldom had a customer walk away without a sale after I have said that.  To "no tax" I would say "yes tax" because the tax is on you, the customer, and I, as the merchant, am only the collecting agent for the government.  I don't have the legal authority to waive it.  Otherwise, I have to pay it as a gift to you.  I don't need the business of someone who won't accept that.

To a hard core haggler I would tell them that this is not a mid-eastern suq and I am not a rug merchant who starts at an inflated price and expects to settle for something less.  I set my prices fairly and if you can't accept that move along and make room for someone who will.  If they can find products similar to mine at a cheaper price good luck to them but I think that they will have to look long and hard and my items are here and now and priced fairly.

That said, I will cut my price a bit for someone I take a liking to or who is sympathetic, e.g. the teenager who really wants to buy a brooch or torc for his girlfriend but is a few bucks short of the listed price.  I can be a soft touch for a sob story.  I will eat the sales tax in that situation.

"By hammer and hand all arts do stand."

[Marc1]

On 12/19/2019 at 12:37 PM, George N. M. said:

How many folk, either the occasional craft show merchant or the full time smith doing thousands of dollars business per year actually go through the hassle of charging and submitting sales tax to the local state, county, or municipality?

Clearly this depends of country / state  and personal tax situation. 

In Australia it is rather simple. Whatever you sell, if you sell over $75,000 needs to have 10% GST (goods and services tax) added to it. You can not claim back your GST from purchases if you are not charging because you are under the threshold. A bit of a catch 22.

Personal income tax applies regardless and we have the usual escalating rate in order to punish the high income earners who as everyone knows, are very bad people.

But after reading Hans' situation in Belgium ... I am not complaining. Go Boris go !!!!!!

GST that was introduced relatively recently, was supposed to be a blanket tax all encompassing and replacing several other state taxes like payroll tax and other very inefficient and encroaching taxes. In the turmoil that followed, those who pretended to protect the taxpayer, achieved the opposite, that is exemptions that made the tax less effective and consequently all other taxes remained. One particularly vocal group who's quest was to save the students from paying tax on books, achieved this exception in a time where ... well, who buys books? This affects mainly larger companies ( who as we all know are really bad people )  and the small business is better off in appearance. In reality suppliers are largely the target of over encroaching taxes and therefore everyone is affected by higher prices. 

This scenario leads to a rather peculiar situation. Say you are a blacksmith selling your products in a country fair, you have a stall, you sell less than $75000 a year and are therefore exempted from charging GST. next to you is a steel supplier who manufactures steel products and sells them through a franchise of little outlets all registered for GST. Your competitor (the bad guy) is 10% in disadvantage with you, plus needs to pay a string of other taxes you do not.

[jlpservicesinc]

Since we are venturing into pricing.   I have items on the display table..  Not one piece has a price on it..  When I am asked I give that person a price.. (Since I made the piece I remember how much time+ materials+ misc so give them a price.. If they haggle I tell them forget it is no longer for sale. If they quickly correct themselves and pony up the money. No harm no foul. 

If they walk away at that price I add  5.00 to the cost of the item in grief charge..  If they say they need to go and get more money I leave it at the price, but if they simply walk away when they come back it's 5.00 more.   

I had a 35.00 trivet on the table that sold for 75.00.     Many would say that's unfair or cheating, or rude, etc, etc, etc.   I certainly feel better when the item sells for the higher amount and it has shown me time and time again, that some of the items are under priced. 

In the early days I had a fireplace set that no matter how much I lowered the price it would not sell. 450.00 was the start asking price.  after a season of demos it was 200.00,   It wasn't till I got mad and started going up on price that it sold after a day for 550.00. 

I had a bidding war on a trivet once.  that was fun and interesting. 

When it comes to purchasing,  I don't haggle anymore on hand made items mine or anyone elses if they are the maker.. 


For the most part I don't even haggle when it comes to striking a deal on a used item purchase.. I will come right out and ask if the person has wiggle room.. If they do than so be it and if they don't I know where they stand and then what that item is worth to me. 

One aspect before I even ask if they have wiggle room on the price is to have the full amount ready..  So, if they say no and I want the product I have to be willing to fork over the full asking price right there..   

If they say yes, they have some wiggle room I apologize right up front and give them  a price of what I think is a fair and honest and if they take it. So be it and if not we will meet somewhere..  Again, all ready setting a price in my mind at the asking price if it's something I have wanted or need. 

So, the part I want to mention is not to undercharge. 

[Marc1]

I love the $5 punishment increase.

In general ... and this is a personal perception, Items on display with no price are automatically suspect of being overpriced even if they are not. 

Pricing correctly is an artform, and an item that does not sell may sell if you take it off the table for a season and return it for twice or triple the price. 

But don't tell your customers that

[CrazyGoatLady]

Most times when I go to a fair or craft show, I see many things I'd like to buy. Especially If it's something that I do myself, like drawing (graphite/pen and ink) or blacksmithing now, I understand the time and work it took to produce said item. I wouldn't even try to haggle it down because I understand perfectly the value in one's time and talents, skills. But I don't have the money most of the time being on a budget. But i would pay a price without trying to talk it down. 

[George N. M.]

I'm going to have to try the repricing at a higher level on some items that I have been hauling around for years which haven't sold.

Also, I will reprice items depending on the venue and the expected demographic of the clientele.  I'd charge a much lower price at a local, small town farmers' market than I would at an "art" event in Boulder or Aspen, CO for the glitterati.  At the latter events I have to crank up my pretentiousness level higher than I am normally comfortable with but I do feel that I am doing karma and the universe good to relieve someone of a portion of the money that is not good for them to have so much of.  If some working stiff wanders up at a fancy event I will give him the "friends and family" price.

I don't like having pieces unpriced because that seems to invite haggling.  If you are asked how much an item is and say "$X" that seems to stimulate a response of "Will you take $Y?" while a price tag seems to be a firmer statement.

Marc, just to put your GST into perspective for the Yanks here, your $A 75,000/year = $US 51,750.  That is still a lot more than most smiths make in a year from their craft.  It sounds like the idea is to give the little guy a break but, as usual, things work out differently in practice than theory.  Also, that does not mean what is sold by a small guy is not cheap and nasty.  I have seen some pretty shoddy items being sold at fair booths, usually resellers who buy cheap imported items, mark them up and sell them to folk whose mental faculties have been impaired by fair food like deep fried twinkies.

I have found that some of my best customers are other crafts people because they recognize the quality and the level of skill needed to produce something.  Those are situations where I am very open to barter for their crafts.

One last thing on sales tax to bring the thread back to the original topic:  A warning:  If you have a sales tax # don't give in to the temptation to use it for non-business purchases to avoid paying sales tax.  That will get you if fairly deep organic material if you are caught.  Can we all say "fraudulent usage?"

"By hammer and hand all arts do stand."

[ThomasPowers]

Since I'm in blacksmithing for the fun; that can figure in in selling stuff too.  Someone picks up a nice item and tries to haggle the price down; take it from them and sigh theatrically and apologize to them that you spent so much time on it and did such a poor job on it that it's not worth the price you had to get for it and set it under the table to be hidden away. I've had folks offer more for it just to get it back on the table.

I sure run into a lot of people who don't understand that custom work SHOULD be more expensive than mass produced stuff made for third world salaries.  

[Marc1]

56 minutes ago, George N. M. said:

At the latter events I have to crank up my pretentiousness level higher than I am normally comfortable with but I do feel that I am doing karma and the universe good to relieve someone of a portion of the money that is not good for them to have so much of.  If some working stiff wanders up at a fancy event I will give him the "friends and family" price.

ha ha ... do you dress up for the occasion? I suggest long pointy shoes, possibly white, an elephant tail hair bracelet and a multicoloured bandana on your forehead. 

Re-pricing higher ... yes, polish or wire brush it first

The 75k threshold is for gross sales not profit. 

Haggling is something I wouldn't dream of doing to an artist / artisan / craftsman and not even to a tradesman. Big projects in the tens of thousands i ask ... can you do it for $X ? All I can get is a no. Many times i get a yes and a supplier or tradesman i can call back many times over.

Like I said, pricing is an artform and many never got the memo

[jlpservicesinc]

I personally have never had a problem with not marking a price on items..   I have a little sign that reads " All items are for sale"..  Thats all it takes..  

I wouldn't call me a snob or sales snob at all..  But after 40+ years of doing it. I have come to understand that there are different levels of selling goods..  There are trinkets which today sell very well, bottle openers, key chains, leaves, heart shoes, etc, etc. . I call them trinkets because of the size..  IE easy to pocket..   

This is not the market share I am after, though the sales potential is huge.  The smallest things on the table are nails and drive in keepers for thumblatches..   Both will hurt you if stuck in the pants pocket. 

Most the work I sell is a larger item but ideally the only thing many will walk away with are business cards I go through about 2000-3000 a season..  it's also one of the reasons I get paid to go and demonstrate events vs paying to be there..   Yes, I get paid to demonstrate even at events that are sales based..  So, while everyone else is paying to be there.. I am being paid to be there.. 

I learned a long time ago that demos are free advertisements and that average turn around is 3-5 years.. this has proven true back when i was a pro and it still proves true today on larger project items which is the market I am after.   With this said this past year I had a few demonstrations where a few of the larger priced items sold quickly and extra money was included as a tip..    If someone gives a tip.. What does this say about pricing.  the items in question were priced correctly for the time and materials involved.