As you work hard to push your business to the next level, your state revenue department likely wants their cut of the profits – unless you operate in one of the five states without retail sales tax, that is. If you’re in one of the other 45 states, however, then you must collect the tax from your customers and pass it onto the state. Otherwise, you could end up in deep financial trouble. Thankfully, it’s easy to avoid all that by following these tips from your trusted auto repair coach, Chris Cotton.
What Happens If You Don’t Collect and Pay Sales Tax?
First, what happens if you don’t collect sales tax or decide to spend all the funds without handing them over to the state? Well, you could end up paying up to 30% more in fees and penalties on the total sales tax owed. Ouch. States take their money seriously, and they often have more resources than the IRS to come after businesses that do not comply.
The reason they take it so seriously? The money was never yours in the first place. You’re simply tasked with collecting the money consumers must pay when they buy things. This simplifies things for the consumer because they’d otherwise have to list all the stuff they buy each year and pay their sales tax annually.
For you? Not so much, but it doesn’t have to be complicated or overly involved.
Sales Tax Steps to Follow for Your Auto Repair Shop
As with most things, putting a proper process in place can make it much easier to say goodbye to sales tax money — on time and without risk of penalties. Here’s how to approach this significant step in running your auto repair shop.
Check Your Point-Of-Sale System for Tax Collected
Your point-of-sale system should do the heavy lifting in determining when to charge sale tax and how much to collect. You typically collect tax on parts, fluids, and other goods, not services. But it largely depends on your state laws.
The amount you have to collect varies, too, often landing in the 2.9% to 7.25% range. Thankfully, all you have to do is look in the system each week and write down the total amount of sales tax collected.
Transfer the Sale Tax Money to Savings Each Week
Once you have the sales tax figure in hand, grab it out of your business bank account and put it in your holding account. Do this on a weekly basis, and it’ll be like the money was never there in the first place. Which it wasn’t, not for you at least. The state expects the money, so it’s best to get ready to pay them on time and in full.
Do Not Spend the Sale Tax Funds — No Matter What
If a considerable expense comes up, it might be tempting to divert the sales tax funds to cover it and then pay it back later. Unfortunately, since you likely cannot predict the future, that’s a dangerous game to play.
Instead, just find another way around your obstacle and leave the tax money to sit in peace in your holding account. With that move, you always know that the tax money is ready to head out to the state and satisfy their desire for consumer funds.
Regularly Pay Your Taxes to Remain in Good Standing
Depending on your business structure and revenues, you may need to send in your tax payments quarterly or monthly. Either way, make sure that your payment includes the total amount of sales tax collected for that period. By doing so, you significantly protect your bottom line and avoid ending up in hot water in the future.
Want Help? Try Our Auto Shop Profits and Cash Flow Program
If you just want to help people keep their cars in excellent running condition, dealing with all the finicky business details might leave you wanting to run for the hills. Since it’s vital to the success of your business, you have to do it — but you don’t have to go it alone.
You can turn to Chris Cotton at AutoFix Auto Shop Coaching for the guidance and support you need in paying sales tax and handle all your other business affairs. To start the conversation, you just need to call 940-400-1008 or fill out the online callback request form.
From there, it’s just a matter of aligning your efforts with the needs of your auto repair shop. Then, before you know it, you’ll be on track to phenomenal growth and revenues. So, please feel free to reach out today to get started.