Administering the Sales Tax

1. 1

   Fifty-seven (57) percent of small-business owners collect and remit sales taxes (excluding those in states where none are levied). On average, sales taxes are levied on about half of their sales. Retailers universally collect them with about half of those in construction, manufacturing and services (narrowly defined) collecting them on at least some sales.

2. 2

   The most frequent (54%) primary reason that 42 percent of small-business owners do not collect any sales taxes is that they sell tax-exempt services. Another 18 percent say the primary reason is that they sell to non-end-users. The remainder provides varying reasons though relatively few report sales outside their home state’s jurisdiction as the primary reason.

3. 3

   Thirty (30) percent of small-business owners who collect the tax say that it could be made “a lot” easier to administer and another 24 percent say that it could be made “a little” easier. However, just 4 percent classify administering the sales tax as a “serious business problem” with another 23 percent terming it a “continuing hassle.”

4. 4

   Different tax rates on different sales create “a lot” of administrative burdens for 13 percent of small-business owners who believe the sales tax could be simplified. Almost the same proportion find exempt sales creating “a lot” of problems. Thirteen (13) percent also find that distinguishing between exempt customers, e.g., a non-profit organization or a non-end-user, and non-exempt customers leads to “a lot” of difficulties. Those expressing concern about each are usually not the same owners.

5. 5

   Modern cash registers appear to play an important role in mitigating potential problems caused by different tax rates and the tax-exempt status of some sales.

6. 6

   The largest administrative problem for small-business owners appears created by compliance with varying sales taxes in multiple jurisdictions, particularly between state and local sales tax structures in the 30 states that allow local sales taxes. Only 19 percent of those facing state and local sales taxes say the jurisdictions have “identical” taxes for all intents and purposes, though 50 percent say they are similar.

7. 7

   About 6 percent of those collecting sales taxes report that they must collect them for more than one state. Eleven (11) percent of the group has sales over the Internet.

8. 8

   In the last five years, 18 percent requested at least one refund or adjustment for overpayments made. Seven (7) percent report that the requested change was “very difficult” to obtain while 40 percent reported it was “somewhat difficult.” Overpayments resulted primarily from clerical errors.

9. 9

   Nineteen (19) percent report that they are allowed to keep a percentage of the revenues collected in payment for their services as “tax collectors.” But, about two-thirds of those say that the reimbursement does not cover the costs they incur collecting the tax.

10. 10

    Over one in five have experienced an audit of their sales tax records in the last five years. It is also common for those not required to collect sales tax to experience a sales tax audit.

Volume 2, Issue 4, 2002
ISSN 1534-8326

William J. Dennis, Jr.
NFIB Research Foundation

• 1On approximately what percentage of your total sales must you charge the state sales and use tax? Top 100
• 14Are your sales exempt from sales and use taxes PRIMARILY because they are: Top 100
• 2Which best describes ADMINISTRATION of your state’s sales and use tax?
• 3Could your state’s sales and use tax be made easier to administer? A lot or a little?
• 4What is the ONE most important step the state could take that would simplify administration of the state sales and use tax for you? (Open)
• 5A(problems with sales tax) Different tax rates on different taxable goods or services.
• 5B(problems with sales tax) Some goods and services are taxable and some are not.
• 5C(problems with sales tax) Some people and organizations have to be charged the tax and some don’t.
• 5D(problems with sales tax) Reimbursement for overpaid taxes.
• 5E(problems with sales tax) Subject to different sales tax rules in different political jurisdictions.
• 5F(problems with sales tax) Maintenance of special records such as resale or exemption certificates.
• 5G(problems with sales tax) Tax deposits required before invoices are due or bills paid.
• 5H(problems with sales tax) Frequency of tax deposits.
• 5I(problems with sales tax) The need to collect and pay sales tax on “out-of-state” transactions.
• 6How do you normally distinguish between sales that require the tax to be charged and sales that don’t? Do you:?
• 7Are any of your sales also subject to a local sales and use tax?
• 7aHow many local jurisdictions have sales and use taxes that you must collect?
• 7bExcept for the actual tax rate, does the local sales and use tax have essentially identical, similar, dissimilar, or totally different rules and coverages than your state sales tax?
• 8Are you required to collect and file state sales tax in a state other than your own?
• 9Do you sell goods or services directly over the Internet?
• 10In the last five years, have you overpaid sales taxes and requested a refund or an adjustment to current taxes?
• 10aThe last time overpayment occurred, was the primary reason for it:?
• 10bWas it very difficult, somewhat difficult, not too difficult, or not at all difficult to obtain the requested refund or adjustment?
• 11In the last five years, has a state agency audited your sales tax records?
• 12Are you allowed to keep a certain percentage of the sales tax as compensation for collecting it?
• 12aIs the amount more than your costs, the same as your costs, somewhat less than your costs or a lot less than your costs?
• 13Are your sales BEST characterized as involving lots of transactions at relatively small amounts per transaction such as a diner, or fewer transactions involving large amounts per transaction such as in an auto dealership?
• 15In the last five years, has a state agency audited your records to determine if you owed any sales and use tax?
• 16Though you don’t collect sales and use tax now, have you had to collect it at some other time within the last five years?