If you are used to selling your craft projects to family and friends, the idea of charging sales tax may have never come to mind. When you start a business though, you have to think about sales tax for every transaction. As a salesperson, you are responsible for collecting tax on behalf of your state and reporting it every month. This extensive guide goes over how to handle sales tax when selling at craft fairs so you can be prepared for your next sale.
Determining If You Need Sales Tax
Most states in the U.S. require sales tax, but there are a few exceptions. Businesses in Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have to worry about sales tax because their states do not require it. If you are living in a state other than the ones listed above, you will need to go through the steps to collect and report tax on the items you sell.
Getting a Sales Tax Permit
Before you can collect or report your sales tax, you need to have a license for it. There are several ways to go about doing this, so you have to figure out which one is right for your business. Here are the steps you may go through to get your sales tax permit:
Step 1 – Establish Your Business
You will have a much easier time obtaining your sales tax license if you have a DBA, an LLC, an Inc., or some other formal identification for your business. Research which business entity is right for you and select the one that best suits your plans for the future.
Step 2 – Apply for an EIN
An EIN is an employer identification number. This is issued by the federal government as a way to identify each business numerically. Think of this as the social security number for your business – the unique code that separates you from everyone else. Visit the IRS website and print off the SS-4 Form on the site. After you fill out the information on the application and submit it, you should be able to receive your EIN in the mail.
Step 3 – Apply for a Sales Tax Permit
You can contact the Department of Revenue for your state for information about how you can apply for a sales tax permit. Most states will allow you to apply online, but some will require you to mail in your application. If everything goes well, you should soon have the permit you need to collect sales tax at a craft fair.
You may have to wait a few months to get your sales tax permit, but then you can operate as an actual business at a craft fair. Apply for your permit as soon as you can to avoid a lapse in sales.
Collecting Sales Tax at a Craft Fair
Once you have the permit you need for collecting sales tax, all you have to do is add the tax for your area to each item that you sell. Sales tax varies significantly throughout the country, so you will have to research what the going rate is for your state and county. In most cities, this will be around 8%. Make sure you have a calculator on hand to add that price into the cost of each item. That will ensure that you gather the right amount of money for the number of items that you sell.
Keep an accurate record of the sales tax for each of the items you sell at the craft fair. You may do this on the computer or by manually assessing your receipts at the end of the day. If you do not want to do that, you will need to calculate your sales for the day and take out the money you owe in sales tax comparatively. Put your sales tax money aside to turn into the government, and then you can go about reporting your taxation to the IRS. Ideally, you should create a separate account at your bank to hold the sales tax, preventing you from unintentionally spending it on materials and marketing.
Note: If you are selling your products to a reseller who plans to sell them to other people, you do not have to charge them sales tax. They will be responsible for collecting sales tax when they sell the products to the final customer. But ask to see the person’s reseller’s permit or resale certificate before exempting them from sales tax, just in case he or she is lying to you – otherwise, you could end up in hot water.
Reporting Sales Tax to the Government
Every state is different when it comes to the way sales tax is reported within it. Some states will allow you to report your sales tax online, and others will ask you to fill out forms every month. If you have the opportunity to report and pay sales tax on the internet, take advantage of it. That will be a much more convenient option for you in the long run.
The amount of times you have to report your taxes annually will depend on the volume of your sales. If you sell a high volume of merchandise at craft shows, you may have to report once a month. If you only sell a handful of items on the weekend, you may be able to report every quarter. Do research on the laws in your state for more information about reporting schedules.
Pay attention to the due dates for your sales tax reports. If you miss the deadline, you may be charged a fee for being late. Avoid the reports for too long, and you could lose your sales tax permit altogether. Even if you go a full month without making a sale, you need to report “0″ to the government so they can track the progress of your business.
You will need to submit your sales tax money when you report it to the state. Do not assume that you will turn it in when you file taxes at the end of the year. You will be able to report your sales tax on your tax returns, but you will not pay them at that time.
You might be able to save money by pre-paying your sales tax to the state. This will require you to predict your sales taxes early on, but it may help you cut your costs on a month to month basis. Explore this opportunity a little further to reduce your business expenses.
Additional Tips for Handling Sales Tax
- If you travel to multiple locations for craft fairs, you will need to check the sales tax laws for each area. You may have to charge more money in one city than you do another, so make sure you know where you are and what you need to collect.
- You may be able to streamline your tax collection and reporting through software programs on your computer. Try to find a bookkeeping program that will sort all of that information for you. Then you can focus on making products, rather than calculations.
- Keep a copy of your EIN and sales tax permit with you at the craft fair, just in case you are questioned by a sales tax agent for the state. You probably won’t have this problem, but it is best to be prepared at all times.
- If you work with resellers at the craft fair, make sure you get a copy of their resale certificates for your own records. You may be asked to provide proof of this when you report your sales tax, so you might as well keep the paperwork as a backup.
- Check the state sales tax rates throughout the year so you can charge the most accurate amount to your customers. You will need to verify the going rates for your district and city as well, adjusting to changes as they come.
- If you plan to take your sales online after the craft fair, do not worry about collecting sales tax. The only reason you would have to do this is if someone makes a purchase while living in your state. You can put a disclaimer about sales tax on your website, explaining that people within your state will be charged an extra fee to cover state taxes. In most cases though, you won’t be dealing with customers in your area.
Now that you know how to handle sales tax when selling at craft fairs, all you have to do is prepare for the fair and collect taxes as you go. If you have questions about the rules and regulations for your area, get in touch with [your state's] Department of Revenue. You may also find answers through a local small business association, or through other crafters at the fair. This may not be the most exciting part of the job, but it is something you have to do as a business owner. Take care of your responsibilities every time you make a sale, and you will never have to worry about illegal conduct.