Sales Tax and Use Tax and exemptions

The Pennsylvania Sales Tax has intricacies that require a lot of study to be sure of adhering to the laws while still avoiding paying unnecessary taxes. Let's start with Sales Tax....

To begin with, a lot of customers hold a Sales Tax license and believe that gives them exemption from any sales tax liability on their purchases. If they run a gym and a window breaks, the glass used to replace the broken pane is not exempt. It is part of an expense to maintain their facility, not something for resale. Other businesses do similar things. From a financial standpoint, the business is saving money. If a PA Sales Tax auditor catches this a couple of years later, the tax will be due, along with interest and penalty. Naturally, one purchase isn't a big deal. If this is a habitual practice, the results of an audit can add up quickly.

When a customer claims exemption from Sales Tax on a specific purchase, you as the collector are required to have an executed exemption form for that purchase. If the customer is a regular customer, particularly purchasing items from you for resale, having a single form in the customer's file will, from my experiences, satisfy an auditor.

As a business collecting Sales Tax, there are rules within PA of what is and what is not taxable. You need to know what items you are selling that are taxable and what are not. An orange or grapefruit isn't taxable. It's food. But...the meal you get at a restaurant is taxable. It's a prepared meal. A shirt is exempt from sales tax. An accessory, possibly a purse or bracelet, would be taxable.

A quick bit on Use Tax. Use Tax is due on anything taxable purchased without tax charged. This often occurs in construction and with interstate or international purchases. I've been told that if you order something from another state and no tax is charged, you don't owe the tax. This is flat out FALSE! If the item purchased from another state and will be used by your business, not for resale, The PA Sales Tax is due.

That's all for now. See you next time.