In our line of work, we have the privilege of working with numerous businesses. This exposure gives us insight into what’s working, what’s not working and what are common mistakes.
Recently, we have run into some confusion surrounding the preparation of sales and use tax returns (we know, this stuff can be confusing); specifically understanding the correct information to enter into the boxes.
The following example is specific to North Dakota, however the moral of the blog is applicable in all taxing jurisdictions.
The first step of a North Dakota return requires you to enter the information for the system in order to calculate the State portion of the sales and use tax. See below for a visual representation.
Section 1: Sales Tax
Remember, these are the taxes imposed at the time of the sale.
Total sales: Your gross sales (taxable and nontaxable).
Nontaxable sales: The amount of your gross sales that is nontaxable.
Net taxable sales: The amount of your gross sales that is taxable (this is calculated for you based on the preceding information entered).
We have noted instances where businesses are only reporting their taxable sales in the total sales box (ignoring the nontaxable sales). While you still arrive at the correct sales tax amount, the report itself is not being prepared properly.
Let’s take a look at an example. You own a store that provides both retail (taxable) and wholesale (nontaxable; the customer is a reseller and you have their current exemption certificate on file). In December, your total sales were $10,000. Of that amount, $1,000 was purchased by wholesalers and $1,000 was sold to a MN customer. This means that this $2,000 is nontaxable sales. The remaining $8,000 in retail sales is your North Dakota net taxable sales.
Section 2: Use Tax
The next section relates to use tax. Remember, these are the taxes are imposed on the use or consumption.
Items subject to use tax: The amount subject to use tax.
In this scenario, we will say that your store purchased $100 worth of office supplies online. There was no sales tax charged at the time of the purchase. The office supplies are considered taxable in North Dakota; therefore you would need to report $100 as items subject to use tax. Although having no items subject to use tax is possible, we have noted instances where businesses overlook the use tax portion because they do not understand the concept of use tax.
Want more information on the difference between sales and use tax? Check out our blog on the topic here.
The moral of the story…
With over 10,000 different tax jurisdictions it would be impractical to cover each jurisdiction (which is why the example is specific to North Dakota). However, no matter the taxing jurisdiction, it is important to understand the components of the sales and use tax return to ensure you are reporting your numbers correctly. As always, if you have questions, our trained professionals understand (and enjoy!) this stuff, and are always ready to help you.