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Are you paying sales tax on sales tax?Sales tax is charged as a percentage of every taxable sale (the rate varies depending on the nature of the transaction). Assuming a 5% rate, the business collects $105.00 for each $100.00 sold. When preparing the business's sales tax return, rather than remitting to the state all sales taxes collected, total sales are multiplied by the applicable rate. This puts the burden for accurate sales tax collection on the business (i.e., if sales tax is under-collected from customers during the tax period, the business must make up the difference when filing the return). The business should then pay the State of Maine $5.00 for each $100.00 of sales (again assuming a 5% rate). A problem arises for businesses if they include sales tax in their sales figure. If sales tax is included in the sales figure, then the business may overpay its sales tax. That is, when preparing the sales tax return the business reports $105.00 of sales (rather than the correct amount of $100.00) and pays $5.25 in tax. Although the overpayment is not significant at this level ($0.25 overpaid), with higher sales, the overpayments can add up quickly. At $10,000.00 sales, sales tax would be overpaid by $25.00.
In addition to the above, please note that the State of Maine has made changes in what sales are taxable for sales tax purposes effective January 1, 2001. One example is that certain snack foods will no longer be taxable. Please contact us if you have any questions on these issues. See also our article on use tax.
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