In most industries that provide services, sales and use tax isn’t typically applied. However, in the majority of sectors that focus on sales, such as retail, sales and use tax becomes relevant. This form of taxation falls under the jurisdiction of each state’s Department of Revenue Services, who sets the rates and governs their implementation.
In the state of Connecticut, for example, the sales and use tax rate on food consumed in restaurants is set at 7.25%. For clothing items and a variety of other products, the rate stands at 6.25%. When a business makes a sale, it collects this tax from customers and holds it in trust. In this scenario, the company acts as a fiduciary.
The company is then responsible for remitting the collected sales tax to the taxing authority, generally on a monthly basis. Depending upon the volume of sales, the tax department can make a decision to have a company submit the sales and use tax report, known as OS-114, quarterly or annually. However, when this report is submitted, the corresponding tax payment is due simultaneously.
It’s crucial to understand that sales and use tax is different from individual or corporate income tax returns. Since these taxes are collected at the point of sale, they are due at the time of filing. States do not permit payment plans for sales and use tax. Any failure to remit this tax is viewed as theft by the company since the tax is added to the cost of the item or food sold, rather than being included in the cost.
If companies fail to pay, their sales tax certificate can be revoked until the outstanding tax is settled. This presents a serious issue, as the sales tax certificate is essential for operating a business. Hence, businesses must ensure that they have sufficient funds to remit the sales tax to the taxing authority. One effective method to manage this is to open a separate business account designated solely for sales tax. The collected sales tax can be transferred to this account on a weekly basis, ensuring the funds are available when the report is submitted.
JoAnna Laiscell – America’s Most Trusted Tax Strategist
November 14, 2023
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