Written by Gene Caballero on November 27, 2016
Should I charge tax on my next mow?
Don’t get a surprise tax bill at the end of the season for lawn care
The answer to the question about lawn care taxation is “maybe,” but according to the Internal Revenue Service, $458 billion in taxes go unpaid every year. Of that $429 billion, $319 billion of those unpaid taxes include personal income tax from small businesses and partnerships. In a recent survey conducted by TurboTax, lack of tax knowledge attributes to 20% of small business owners not filing taxes or not filing them properly.
So as a lawn care provider, the burden for ensuring one is in compliance with all tax rules and regulations falls solely on the shoulders of the owner/operator. An area of taxation that can be misunderstood by those who mow lawns for a living or by anyone that is not a tax professional, addresses the rules applied to sales tax.
Since paying taxes is a civic duty and a requirement of the law that can be punishable by fines or jail time, a breakdown of a few facts about determining the best way to handle these obligations as they pertain to lawn care is vital.
Lawn care sales tax regulations vary by state
Sales tax normally applies to all sales of goods and services that are exchanged for monetary value. These tax rules can vary widely from state to state. It is safe to assume that all lawn mowing services are taxed unless the state’s tax rule states otherwise. For example, cutting grass in Chesterfield, Missouri, may yield a 7% sales tax but cutting grass in Belleville, Illinois may only yield a 5% tax rate. Providers should double check and become familiar with the tax regulations of the states in which business is conducted.
Categories of lawn care provided can determine sales tax rate
In some states, the difference between taxing what is sold or what is serviced can be very complicated. For example, in some states, one may not have to charge sales tax on mowing alone but would be on the hook for taxes on the mulch or flowers purchased for the homeowner. It is best to rely on the advice and knowledge of a tax professional when determining what goods and services can and should be taxed.
Sales tax permit is required
Most states make it mandatory to have a sales tax or license for the business to engage in sales of both goods and services. By obtaining this permit, one is allowed to charge sales tax on customers’ purchases so one can collect the necessary amount owed when filling out taxes. To obtain this permit, an application must be filed through the department of taxation in the state, or states, of operation. After approval, the state will issue a sales tax identification number.
Lawn care professionals who charge tax must file a return
All lawn care professionals, even sole proprietors and Limited Liability Corporations who collect sales tax, are mandated to file sales tax returns within their state’s tax authority. The occurrence and schedule may vary by each state, so it is advisable to double check with a tax professional who is familiar with local tax regulations and also familiar with the services industry.
Paying taxes is one of the certainties of life and an obligation when running a business. The intricacies of tax laws and regulations are normally a burden for anyone that has not been a student of the field. Additionally with new laws being passed every year, it is best to keep abreast of any laws that could affect the industry that one operates. By becoming familiar with these facts, one can make certain that they are abiding by all rules and regulations set forth by the state of operation. In the area of taxation, ignorance is definitely not bliss.
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