The Confusing Honor System of Sales Tax

I often hear business owners complain about how much sales tax they have to pay. I tactfully respond, “You technically don’t pay anything in sales tax for your business.” 

At that point, I usually get one of two responses. One is the look of “you don’t know what you are talking about” or the other is to the effect of “yeah, right.”

Sales tax is a state tax imposed on the consumer at point of sale. It is collected by the retailer and then passed on to the government. It is not a tax paid by the retailer out of their profits. The retailer is merely collecting, holding and then passing along the state tax.

Unfortunately, once the sales tax money is deposited into the retailer’s bank account, the retailer has the tendency to look at it as their money. Thus when it is time to pass this along to the state, it feels like the retailer is being taxed. In some cases, retailers even spend the funds and have a difficult time coming up with the tax dollars they collected — money that didn’t belong to them and was not theirs to spend.

Sales tax is basically handled by an honor system. A retailer charges and collects the tax. Then based on their situation, either monthly, quarterly, or very rarely annually, deposit that to the state. In Florida, the easiest method is filing an online sales tax report and setting up a bank ACH for the payment. 

The most basic report will ask for all sales, then any non-taxable sales and then the taxable sales. The report will ask for the tax collected. If you file online and on time, there is a collection allowance you might be entitled to take. The report will calculate the taxes owed. These are due by the 20th of the following month. The Department of Revenue does perform sales tax audits. These audits are detailed and extensive.

How much to collect depends on where you are selling your product. Florida sales tax is 6%. However, each county can have a surtax — an additional tax voted in by residents. Brevard has a 0.5% surtax for Brevard County Schools and another 0.5% for the Indian River Lagoon, so sales tax is collected at a rate of 7%. 

A retailer in Brevard who sells in Orange County would only collect 6.5%, that areas’s current rate. There are spaces on the sales tax report to account for sales outside of your county. It is important to know when and how to collect and report multiple rates. 

Florida Department of Revenue can be helpful in answering questions. If your business has to file and deposit sales tax, you might want to consider consulting with a professional to assist with setup and reporting. 

Sharon Dubois is NACB certified bookkeeper and co-owner of United States Bookkeeping Co. As a QuickBooks ProAdvisor, she works with entrepreneurs in a variety of businesses teaching them how to read and understand their company’s financial reports and how they relate to day-to-day operation of their business. In her spare time, Sharon is busy with the Marine Corps League and the American Legion Auxiliary. 

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