I wish someone had told me it was an absolute certainty we would be audited for state sales tax within the first three years of being in business before it actually happened. I am not a dishonest person, just ignorant when it comes to tax codes. If I had known about the audit, I would have made a greater effort to understand all the tax codes and requirements. And read all the small print. And asked more questions of my accountants. And been more firm with my customers. And I would always carry a copy of my tax ID and resale certificate with me when I shop.
A very nice lady from the Alabama Department of Revenue has been studying our books in great detail over the last couple of weeks. Luckily I am reasonably organized and still have every bank statement, deposit slip and credit card receipt ever generated at the bakery, as well as every receipt for everything I ever purchased from day one and before.
And our point-of-sales system is capable of giving me more information about every sales transaction than I could ever hope to remember on my own.
We still owe money.
So here are seven things we learned during the audit about sales tax in Alabama:
- You have to pay tax (Use Tax) on used equipment when purchased from a liquidator, but not when purchased directly from the prior user. Of course you always pay tax on new equipment.
- You have to pay Use Tax on equipment (new or used) purchased through internet auction sites (such as E-Bay) unless you can prove that the seller was actually using the equipment before they put it up for sale. It does not matter if the seller (and the equipment) is in a different state, and it is YOUR responsibility to report and pay Use Tax on non-taxed purchases as they occur.
- You have to pay tax on 'shipping and handling,' but not if it is just 'shipping.'
- You do not have to pay tax on items you purchase for resale. HOWEVER, providing lunch to your employees is not considered resale and you will be required to deduct purchases of ingredients that may end up as employee meals, no matter how small that amount may be.
- Just because a customer tells you they are eligible for tax exempt sales, AND they provide you with a state tax ID number, does not mean every purchase they make meets the tax exempt criteria. And it is YOUR responsibility to know when to collect tax.
- On the other hand, should YOU pay sales tax on items you buy for resale (such as emergency purchases at the grocery store when you run out of milk or butter), too bad. The state is not responsible or liable for your omission or your inability to claim your exemption every time you purchase an item. You should have the forethought to properly and thoroughly claim your tax exempt status every time you make an eligible purchase.
- No infraction is too small or too old to be ignored.