Some hot dog vendors work multiple jurisdictions, e.g. different counties or cities. Each jurisdiction may have a different sales tax rate. In my county, we have 7% state sales tax and 2.75% local tax. This is a whooping 9.75% sales tax. Each month, I must fill out a sales and use tax form for the previous month. For example; I may do $6,843.00 in sales during May. Next month, in June, I will have to turn in the amount of sales I did along with the tax collected from those sales.
I don't charge sales tax on top of my food prices and instead have my prices include sales tax. For example, if I sell a soda for $1.00, this includes the sales tax. Now, be careful here. A popular vendor course on the market states to take your sales figure for the month and then multiply it by your tax rate; Lets use the figure from above.
Costly Method (other course – wrong method)
Sales: $6,843 x 9.75% = $667.19 tax due
The Right Way (Ben's course)
Sales: $6843 / 1.0975 = $607.92 tax due
That's a whopping $60.00 in overpayment that you could have kept.
So no matter what your monthly total in sales, take that number, divide it by 1.whatever your tax rate is and that will be your before tax total.
Again, based on the above figures. If I did $6843.00 in total sales in May, that really means I did $6235.08 – Now take that $6235.08 and add 9.75% tax to it and you get $6843.00 – That is a great way to check your math.
Let's do it one more time but use simpler numbers.
Total sales last month: $8000
Sales tax is 5% (just using it for an example)
What I need to know here is, how much of that $8,000 is the taxes due? Take the total, $8,000 and divide it by the tax rate of 5%, so we will use: 1.05 which will give us $7,619.05 (rounded up due to the figure was: $7619.047)
We can check this math by taking the $7619.05 and add 5% (380.95) which gives us the total of our $8,000 in sales. Using the “wrong way” you would be paying $400 in taxes on that $8,000. A loss of $19.05. I don't care who you are, if you find a 20 dollar bill on the sidewalk, are you going to pick it up? Me too and me three.
Now if you have been doing it the other way, you have been losing money, paying extra in taxes that you haven't even collected from your customers. I'm sure the state would be thankful, but who wants to donate money to the State Revenue Office? Not me.
Let's get back to the first part. What if you work in multiple areas that have different tax rates? It's a pain in the butt, but I do it too. My solution: When I am in a neighboring county or city that has a different tax rate, I write down what I did that day in sales on my handy yellow pad. So at the end of the month, I know that in Jefferson County, I did a total of $3181 in sales, in Sevier County I did $1722 and in Blount County, $663. I then figure up the tax collected for each county using the method above and fill out the tax return paperwork.
It does add to the headache to keep up with several county tax rates, but if sales in those counties are good, then it's not so bad. Simply another necessary evil of being your own boss. There are some programs available for logging your sales from multiple jurisdictions, but I like my yellow pad method. You may want to consider finding an inexpensive bookkeeper that can take your daily sales down via phone or by mail, then each month they can create your sales tax return for you. Some bookkeepers are only $30 to $50 a month and they do so much more than just sales tax but can provide you with a monthly P&L or other report. My bookkeeper actually gives me a file to load into my Quickbooks program and each month her file updates all the figures so that I don't have to learn Quickbooks in order to see all my sales reports.