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I own a salon and heard that selling retail as an add-on to our services is a smart way to increase profit. I recently started selling retail products, like shampoo and haircare items, but I’ve heard conflicting information about whether I need to collect sales tax on these items. Can you help clarify what’s required?
Sincerely,
Retail Curious
Dear Retail Curious,
Congratulations on expanding your business to include retail sales! Selling products is a great way to increase revenue at your salon, but it does come with additional responsibilities — sales tax compliance being a big one. Let’s break this down step by step so you can understand what’s required and how to stay compliant.
What is sales tax and how does it work?
Sales tax is a state or local tax imposed on the sale of goods and certain services. In most states physical products, such as shampoos, conditioners, skin care, and beauty tools, are considered taxable goods. If you’re selling retail products at your salon or spa, there’s a high likelihood you’re required to collect sales tax at the time of sale. You’ll then remit the collected tax to your state or local tax authority.
How to determine whether you need to collect sales tax
To determine whether you need to collect sales tax, you need to look at the rules in your state and city. Sales tax laws vary widely throughout the United States. Some states have no sales tax, while others only tax retail products, while still others require sales tax on services. The rules can also differ between your state and city. For example, New York state does not charge sales tax on services, but New York City does. This means that taxpayers in New York City have to collect both a state and a city tax for retail sales, but only a city tax for the services. If you’re not sure, make sure to check with a tax professional who is familiar with the laws in your state and city.
Steps to ensure compliance
If you determine that you need to collect sales tax, here are a few steps to follow:
- Register for a sales tax permit.
Start by registering for a sales tax permit with your state’s Department of Revenue or Taxation, depending what your state calls it. This is a legal requirement and allows you to collect and remit sales tax. Selling products or collecting sales tax without a permit can lead to penalties. Save all paperwork or letters you receive when you register. The state will assign you a filing frequency. Make note of the associated deadlines. - Understand what’s taxable in your state.
Not everything you sell may be taxable. For example, retail products are typically taxable, but some states tax specific services. For example, in Ohio esthetic services are taxable, while hairstylist services are not. Research your state’s tax laws to know what you need to charge sales tax on. - Collect and remit sales tax correctly.
Set up a system to calculate the correct sales tax rate for your location. Ensure you file the tax return and remit the collected taxes to the state on time, as missing deadlines can result in fines. Once you register for a sales tax permit, you must file, even if you had no taxable sales in that period. - Keep accurate records.
Maintain detailed records of your sales, taxes collected, and any tax-exempt transactions. This documentation is essential for tax filings and audits.
Tip: Where your technology can help
Square Point of Sale makes it easy to collect sales tax by allowing you to set the rate for your local area. This allows you to calculate sales tax for each transaction automatically. Square also provides historical reports, enabling you to grab the information you need to file a sales tax return quickly.
Common sales tax mistakes to avoid
Sales tax compliance can be tricky, and even small mistakes can have costly consequences. Avoid these common pitfalls:
- Failing to register: Selling retail products without a sales tax permit can result in penalties.
- Charging incorrect rates: Many business owners forget to include local taxes, apply the wrong rate, or fail to update their point-of-sale software when their rate changes. Make sure to confirm your sales tax rate on an annual basis.
- Missing filing deadlines: Late filings can lead to penalties and interest charges. Failing to file can also result in your sales tax license being revoked and losing the ability to sell retail at all.
Resources and tools for sales tax management
Managing sales tax doesn’t have to be a headache. Here are some resources to make it easier:
- State tax department websites: The states want you to pay your taxes, so most make it easy to find the information you need to stay compliant. Check your state’s Department of Revenue for detailed rules and guidelines.
- Professional help: A CPA or bookkeeper experienced in sales tax compliance can help you navigate complex rules and ensure that you’re filing correctly.
Tying it all together
Collecting sales tax is an essential part of selling retail products at your salon or spa. By understanding your state’s rules, by registering for a permit, and by setting up the right systems, you can stay compliant and avoid unnecessary penalties. If you’re unsure about your sales tax obligations, consult with a tax professional or visit your state’s Department of Revenue website for more information. With the accurate knowledge and tools, managing sales tax can be seamless, freeing you up to focus on growing your beauty business and serving your clients.
