Filing Sales Tax

[RZ Operations]

This is my first time doing this and I am confused on how I file the tax that I collected for online transfers? Suggestions?

[XxWoodsHunterxX]

Was it part of your gross sales in the state?

[ugimports]

I calculate it as part of my sales receipts and Quickbooks give me the number to put in on the BOE site to pay. How are you keeping track of it? Do you have an accountant that helps with your books? An example sales receipt of mine might look like this:

CUSTOMER PAID FIREARM: $100 T
CUSTOMER PAID FIREARM: -$100
FFL TRANSFER: $50 T
DROS: $25

The 1st 2 lines keep track of the tax owed from out of state transfers.
3rd line is my transfer fee+tax.
4th line is DROS

At the end of each month I run the sales tax report in quickbooks and it tells me my Gross sales which is the number I input at the BOE site. The sales tax numbers come back and pretty much match my quickbooks with a few $s/cents. I make the payment based on that.

You probably are still on quarterly which is how I started. At some point in revenue number you'll have to do monthly pre-payments/estimates. I had to start doing that a few years ago.

Hope this helps.

[kemasa]

This is my first time doing this and I am confused on how I file the tax that I collected for online transfers? Suggestions?

Your gross income in terms of the sales tax return is false. Basically if you collect sales tax on a firearm, you include the amount the person paid as income to you on the sales tax return. It is NOT considered income when it comes to your income tax return.

So if you did a transfer of only 1 firearm and the price the person paid was $1000, your fee was $50, then your listed income for the sales tax return is $1050. Yeah, it is insane, but it is the government.

[ugimports]

Your gross income in terms of the sales tax return is false. Basically if you collect sales tax on a firearm, you include the amount the person paid as income to you on the sales tax return. It is NOT considered income when it comes to your income tax return.

So if you did a transfer of only 1 firearm and the price the person paid was $1000, your fee was $50, then your listed income for the sales tax return is $1050. Yeah, it is insane, but it is the government.

This really confused the IRS when they audited me. But I had all the receipts and my accountant (who dealt with them) explained it and they figured it out.. I think they thought I was cooking the books because high sales tax / gross income shown, but not the associated income to go with it..

[kemasa]

Yep, it is just another stupid thing that CA FFLs have to deal with, which customers typically never see.

I am sure it can cause problems in many different areas. In my area there is a local business tax which is based on the gross income, but what someone paid someone else is not my income.

[RZ Operations]

I calculate it as part of my sales receipts and Quickbooks give me the number to put in on the BOE site to pay. How are you keeping track of it? Do you have an accountant that helps with your books? An example sales receipt of mine might look like this:

CUSTOMER PAID FIREARM: $100 T
CUSTOMER PAID FIREARM: -$100
FFL TRANSFER: $50 T
DROS: $25

The 1st 2 lines keep track of the tax owed from out of state transfers.
3rd line is my transfer fee+tax.
4th line is DROS

At the end of each month I run the sales tax report in quickbooks and it tells me my Gross sales which is the number I input at the BOE site. The sales tax numbers come back and pretty much match my quickbooks with a few $s/cents. I make the payment based on that.

You probably are still on quarterly which is how I started. At some point in revenue number you'll have to do monthly pre-payments/estimates. I had to start doing that a few years ago.

Hope this helps.

Because I just started last year and very small volume, I been using Microsoft Excel to track my own data along with a free program to track invoicing.

I am actually on a yearly basis since I started so this is the first time I have to do this and it is for all of 2015 numbers.

[RZ Operations]

Your gross income in terms of the sales tax return is false. Basically if you collect sales tax on a firearm, you include the amount the person paid as income to you on the sales tax return. It is NOT considered income when it comes to your income tax return.

So if you did a transfer of only 1 firearm and the price the person paid was $1000, your fee was $50, then your listed income for the sales tax return is $1050. Yeah, it is insane, but it is the government.

This is exactly what I need and answers my question on how to report it. I did small volume for 2015 so there wasn't a lot for me to report but the online transfers is what was confusing me on whether I report it on the total gross sales. Thanks again!

[kemasa]

If you use a spreadsheet, you can create an entry for what the customer paid. I have a column for non-taxable income, taxable income, firearm cost (customer), sales tax, calculated sales tax, different in sales tax. Then you can add the taxable income and firearm cost for sales tax, but ignore firearm cost for income tax.

Having the calculated sales tax, as well as what sales tax you collected, helps to ensure that you did not make a mistake in the calculated amount that you collected.

[halifax]

Since for CA purposes the gross sales is a bogus number anyway, I collect all the correct sales tax into a running "Sales Tax" register. Quarterly I take the total tax collected and divide that by the tax rate to get my bogus Gross Sales number. For example, I correctly applied and collected $5000 in sales tax for the last quarter of 2015.

$5000 / 0.08125 = $61538 Gross Sales

Easy peazy

[kemasa]

I think you need to be careful with that method due to possible rounding issues. It is an easy way to do it, but I don't know that I would trust it. Actually, I know that I don't trust it.

Consider selling 5000 items at $1 each. The sales tax for $1 is $0.08, but there is still the $.00125 which bites you after 5000 times. The sales tax you would have collected would be $400, but the sales tax due would be $406. That means the tax man did not get their money and they don't like that.

If you want to use the numbers that you used, $61538 in sales at $1 each sale results in $4923.04 in sales tax collected, but $5000 in sales tax due. Yes, you get screwed by the rounding. This is close to the worse case for rounding. The lower the sales price, the worse it gets. If you sold everything for a penny, you would not collect any sales tax and would owe $5000.

[halifax]

Huh?

If I correctly calculated and collected every penny of sales tax due and paid the BOE that exact amount...how is anyone getting ripped in rounding? I don't get it.

[kemasa]

Because you collect it per purchase, but you pay it based on the total.

Did you see my examples? In once case you owe $77 more than you collected and the other you owe $6 more than you collected. These are based on tiny selling prices, but that is to make a point.

Look at the extreme example. You sell 10000 items for $0.01 each. What is the sales tax for each item? It is $0.00. But when you sell 100 of them, for a total of $100, you owe $8.125, which ends up getting rounded to $8 when you file the return. If you put the sales tax for away for each item, it looks like you don't owe any sales tax, but because the total is $100, you do.

[ugimports]

I still don't get it. I suck at math though.

[kemasa]

Ok, so let's try it step by step for an easy example.

What is the sales tax on $1 for your area?

What is the sales tax for $1000 in your area?

Multiple the first answer by 1000 and subtract the second answer from it.

When you collect sales tax from customers you do it on each purchase, the $1 for 1000 times, but when you file the return it is based on the $1000.

When you submit the sales tax return it is based on the TOTAL in sales. Each small sale gets rounded, which results in a difference in what you collected vs. what you owe. The rounding is affected by the rate in your area. A sales tax of 8% on $1 is $0.08, but it is the same with a tax rate of 8.125% due to rounding.