Murray & Bacia Edelman on tue 6 jul 99
Greg: I am quite sure, from having dealt with consignment in many states
for many years, that your coffee bar's accountant is wrong. We have some
accountant/potters on the list. I hope they will answer as well.
The coffee bar must keep a percentage of the sale price. She is retailing
your ware. She definitely should pay the sales tax. It sounds as if she
used to charge the tax and then stopped. I hope you will be able to
convince her.
I think Clayarter Bonnie Hellman is or was an accountant. If she is not on
vacation, I hope she will confirm my statement.
Bacia Edelman
You wrote:
Date: Sat, 3 Jul 1999 09:38:13 EDT
From: Gregory D Lamont
Subject: Consignement sales tax question
----------------------------Original message----------------------------
One of my consignment accounts, a local coffee bar that has been selling my
mugs and other coffee-related wares, has stopped collecting sales tax on
slaes of my mugs. She said her accountant told her it is my responsibility
to pay the tax as the mugs are still my property. I was under the
impression that, as the selling agent, she is responsible for collecting
the tax at the time of sale. My other consignment account collects and
pays the sales tax. Who's correct?
Thanks for your advice!
Greg
Greg Lamont
gdlamont@iastate.edu
http://www.ourwebpage.net/greglamont/
3011 Northwood Drive
Ames, IA 50010-4750
(515) 233-3442
Beth Yeatman Spindler on wed 7 jul 99
Having just gotten back from seeing a CPA about setting up my own business, I
discussed the consignment aspect with her. According to her (CPA), I, the
consignor, am responsible for collecting the sales tax for merchandise sold,
unless the merchandise is purchased for re-sale. If that is the case, then
the buyer has to provide me with a Federal I. D. number in order to purchase
the items without paying sales tax - but the consignee has nothing to do with
this. The consignee(who owns the items and agrees to a certain percentage)
receives his/her percentage with (ideally) a statement describing the item,
the selling price and the percentage earned....a check to this person is
issued. This is income for the consignee.......what happens next is up to
the consignee...reporting income,,taxes,,etc........
This is my understanding and I have shelled out a considerable amount for
this information....so if this is not correct......I WANT THE DEFINITIVE
ANSWER AS WELL!!
Beth in Charlottesville, VA.....
Hot, hazy and humid........the mountains though....some 20 degrees cooler in
spots.......
Jeremy/Bonnie Hellman on fri 9 jul 99
Beth,
What you've written is close to being true. If you read it back to your
CPA, you'll probably get some qualifications and modifications to what
you've written. You're right that when you consign, the amount you
receive is gross income to you. The sales price of your pots is revenue
to the shop, and the amount the shop pays you is an expense to the shop.
So the shop's net income is the revenue they get to keep. This is true
for you, too. After including ALL your revenue on your business tax
return (and sales tax is NOT revenue) you get to deduct your business
expenses.
And yes, you need to either collect sales tax or get a copy of the
reseller's sales tax number. An EIN (federal ID number- aka employer
identification number issued by the IRS) is not the same thing. It's a
federal number used for filing your tax return, and identifying your
business. It's required for all businesses with employees. Sales tax is
administered by each state that has sales tax. I believe there are a few
states that don't. Usually (and I don't claim to be familiar with VA
taxes) there is a separate sales tax number. In PA, most resellers prefer
to get a copy (photocopies are fine) of a sales tax certificate, which
includes the number, along with the business name, address, etc.
I believe that your CPA is not correct about the sales tax collection for
consignment sales. There is NO way for you to collect sales tax based on
the final selling price. You are not making the sale to the retail
customer! Theoretically I wouldn't have a problem with the vendor
collecting the sales tax (which is based on the sales price) and having
you remit this to the state, but it really doesn't make any sense, and
creates more bookkeeping headaches for the coffee shop or gallery or gift
shop. Remember that when you collect sales tax and remit it to your
state, you are merely acting as an agent of the state. The sales tax
isn't income to the shop. It's an "in and out".
Most states are quite aggressive about ensuring that sales tax collected
is sent to them. They have audit teams, and they will look at your
business records to confirm that you are collecting all applicable sales
taxes, and properly reporting them to the state, and paying them to the
state. Usually, if you have failed to collect appropriate sales tax, the
state considers this to be your problem. You are STILL required to pay
the state the sales tax you should have collected.
My experience in PA is that if I have questions, I can review their web
site. Most states seem to have excellent web sites these days that
include tax forms as well as tax code and information, plus they will
often answer questions by email. I can also telephone a district office
to ask my question, and then request that applicable printed information
be sent to me.
Beth, your description of how the artist might receive information from
the shop selling his/her goods is OK for reporting income and paying
income taxes. I've seen many messages from artists about preferred
information received from galleries and shops to which they consign their
work.
But as far as sales taxes are concerned, the first thing is that each
state probably has variations in how things work, and certainly
variations about what is subject to sales tax. Plus, in many states,
there are local sales taxes as well, related to WHERE something is sold.
The business that makes a sale is the one responsible for collecting
sales tax, at the applicable rate. And that business is responsible for
remitting the sales tax to the state. When you consign, you are not
selling. You are establishing (hopefully) a legal relationship with a
business for them to sell your work. When the work is sold, you get paid.
If you sell outright to a reseller, they need to provide you with that
sales tax number, or you need to keep their sales tax number in your
files.
Think of it from the viewpoint of the state that wants to collect sales
tax on EVERY sale to the end user.
I'll bet when you met with that CPA you discussed a lot of things and got
a lot of information new to you. I'm sure you have a lot to digest if
this is your first business! I find that when I meet with new business
owners, I end up having a number of follow-up discussions to clarify what
I thought I said and what the client thought they heard.
Bonnie
Bonnie Hellman
CPA in PA & CO
Below is the message I originally sent to Greg Lamont about his sales tax
problem:
Greg,
I can't definitively answer the question for the state of Iowa, where you
live, but in Pennsylvania, it is eac seller's responsibility to either
collect the sales tax at the rate where the sale occurs, or to get a copy
of a purchaser's sales tax exemption number (as when an item is purchased
for resale). I believe it is the same in all states which levy sales tax.
I would assume that the coffee bar, as seller, has previusly been, and
should be collecting sales tax and remitting it to the proper
authorities, as well as reporting revenue based on the "retail" price.
Unless Iowa is different than most other states (or unless your work is
being sold in a location without sales tax), I'm puzzled that anyone
would give the coffee bar that advice. What do they do on sales of other
items subject to tax? Why are they treating your consignment sales any
differently than the inventory they purchase outright?
If I were discussing it with the coffee bar, I'd ask them how they think
you are going to collect sales tax on the sale, since you are not making
the sale. They're making the sales. Are they not reporting the sales of
your work as income on their books? You did not sell your work to them,
you consigned it to them, therefore no sales tax would have been
collected by you. If you had sold your work to them, you would not have
charged them sales tax because presumably they would have provided you
with a sales tax exemption number (which is usually the same number as
the one they use to remit sales tax).
If the coffee bar is thinking that you are going to pay sales tax out of
your own pocket, based on retail sales price, they're asking you to take
a price reduction equal to the applicable sales tax rate.
Those are my thoughts. I hope you're able to convince the shop that they
need to collect and remit sales tax because as final seller, they're the
ones responsible. In PA if I fail to collect sales tax from a customer, I
am still responsible for paying that sales tax to the state. So if you
buy a pot from me in PA and don't pay me sales tax, you've just gotten a
discount and I'm going to be out of pocket 6% or 7%.
Bonnie
>----------------------------Original message----------------------------
>Having just gotten back from seeing a CPA about setting up my own business, I
>discussed the consignment aspect with her. According to her (CPA), I, the
>consignor, am responsible for collecting the sales tax for merchandise sold,
>unless the merchandise is purchased for re-sale. If that is the case, then
>the buyer has to provide me with a Federal I. D. number in order to purchase
>the items without paying sales tax - but the consignee has nothing to do with
>this. The consignee(who owns the items and agrees to a certain percentage)
>receives his/her percentage with (ideally) a statement describing the item,
>the selling price and the percentage earned....a check to this person is
>issued. This is income for the consignee.......what happens next is up to
>the consignee...reporting income,,taxes,,etc........
>This is my understanding and I have shelled out a considerable amount for
>this information....so if this is not correct......I WANT THE DEFINITIVE
>ANSWER AS WELL!!
>Beth in Charlottesville, VA.....
>Hot, hazy and humid........the mountains though....some 20 degrees cooler in
>spots.......
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