The Tax Man Cometh... And it's Not Who You Think!

In January you think about Uncle Sam and filling out your tax return. That’s once a year and this is not about your favorite Uncle. It’s about your favorite Governor. You know, the guy who collects the sales tax each month.

I have helped several jewelers with sales tax audits and it can be just as stomach grinding as Uncle Sam.

Here's where jewelers get caught under the tires of the sales tax man:

1. You are to collect AND PAY sales tax on things bought for the store.
2. If you buy something and resell it you don't pay the sales tax, the person buying it gives YOU the sales tax and you send it to the Governor.
3. If you buy something for the store, don't resell it but use it in the store, you are to pay SOMEONE sales tax on that item. Office Depot charges you sales tax on the paper and sends it to the Governor for you.
4. If you buy paper out of state and the online vendor DOES NOT charge you sales tax you are supposed voluntarily give the sales tax dollars you were supposed to pay to YOUR STATE. This is called USE tax and many jewelers ignore it.  :-(
5. A "use tax" most jewelers should pay and don't typically are things consumed in the shop-burs, emery paper, etc. if your vendor does not charge you sales tax on burs, investment, ultrasonic fluid, you are to pay sales tax on those items. Findings, gold stock, melee are not "use tax" applicable because those are resold to the customer. but the customer didn't buy the saw blades used to size her ring.

When you submit your monthly sales tax there is a place to enter the total of what you bought and were not charged sales tax.

Recently, I was helping a jeweler who was audited last year and on the "use tax" was charged about $15,000. The shop supplies was one area and the other (hold on) was a walk in vault they had bought and the seller didn't charge him sales tax. In addition to that, the company has 4 stores and the sales tax folks just decided to that he probably HAD a vault in each store and were trying to charge him use tax "times 4!"

Took him a while to prove he only bought 1 vault.

The audit ended with just paying use tax on mostly shop supplies and they went back THREE years.

Six months later they came back AGAIN. I thought that was weird and was told: "The tax people know that the store thinks that lightening won't strike twice and they'll go back to their slightly dishonest ways. Lets nab them big time - and you're audited again."

This was now different. With multiple stores they were looking at 1/4 million in sales tax collection. The state was going back 3 years and concocted outrageous numbers that now had to be proven by the store. Unlike "CSI" on T.V. with sales tax people you are guilty until you can prove yourself innocent.

WHAT WERE THEY LOOKING FOR?

Merchandise sales where there were no sales tax collected. If they found 10 such sales they multiplied it by a LARGE number and multiplied that by "3" for three years and that times the 4 stores.

Big bucks here.

They had to go back three years, invoice by invoice to find every sale out of state and to prove it was not bogus. They also had to find the matching federal Express tracking slip/copy of the mailer and attach it to the invoice.

Their point of sales program wasn't able to run a report of sales made outside of their own state because the staff never clicked on the "Ship" button on the POS. They just charged a miscellaneous sales of shipping. But by clicking on "Ship" the POS program would have given a listing of all out of state sales.

It took them about 4-6 months to find it all. In addition the sales tax folks dreamed things up. Like "you should pay use tax on your advertising expenses." Hogwash. The store killed that one.

After all was said and done the amount due was way less than the cost of a used car at Carmax because of the diligence of the store. But since then, the staff uses the correct button on the POS screen and they pay use tax each month on items bought for the stores use, like shop supplies (not items sold to the customer, like sizing stock, solder, heads, etc.)

They also keep in a separate file a copy of any sales made out of town and attach a copy of the Federal Express shipping document.

They are ready for next time.

Take these suggestions and implement them in your store.