Saturday, March 30, 2013

The Business Chat - Do I have to charge tax?

“Help! I have my first craft show in a month and I don’t know what to do about tax. Do other vendors typically charge tax? Should I include it in the sales price?”

Ah sales tax. Grumble whine grumble. We may not like it, (correction, we all hate it) but it is here to stay and if you are going to sell your work you need to make sure you are following the laws.

First, let’s talk about tax at a craft show. What other vendors do is irrelevant to you and your business Many vendors make uninformed, or bad, or illegal choices and you don’t want to copy them. ALWAYS do your own research and make your own decisions. It is your business and you are responsible for the consequences of your choices.

In your craft show contract it states that you the vendor are responsible for collecting the applicable taxes. This means that you need to know the law and abide by it, the organizer will not do this for you.

In Canada we have 3 different types of taxes, HST (Harmonized Sales Tax) and PST (Provincial Sales Tax) and GST (Goods and Sales Tax). Some provinces charge only PST, some charge GST and PST and some have HST. In Ontario we have HST at 13%.

The law in Ontario is that if your sales are $30,000 or greater then you MUST charge HST. I explained this in greater detail in this post.

Regardless of what other vendors do, if you sell more than $30,000 a year, then you charge tax. Simple.

If your sales are less than $30,000 a year you have the option of registering to collect tax. There are advantages to this, the main one being that if you collect tax on your sales you are eligible to a refund of all the tax you spent on supplies. This is called ITC’s, Input Tax Credits. It is quite astonishing how quickly the tax we pay on supplies adds up, getting this back can be well worth the paperwork of collecting tax on your sales.

So, assuming that you are collecting tax, the question is do you include it in the sales price or charge the tax on top.

If you include it in the price then you do not have to do any calculations at the cash register. However, adding 13% (in Ontario) means that your work looks significantly more expensive. Some vendors choose to swallow the cost of the tax. I don’t know about you, but I am not about to lose 13% of my earnings just for the sake of looking cheap!

Whether you choose to include tax is your decision.

Since I began 10 years ago I have always charged tax on top of the price. I don’t want customers thinking my work is that much more expensive and I’m not willing to swallow the 13%. If you sell $1,000 the tax is $130, I’m not losing that. Selling a $95 bracelet is easier than selling a $107 bracelet (tax included). Just about every other business charges tax on top, I do too. We are so used to paying tax at the cash register, it’s just another reason to complain about the government.

It boils down to making your own decision. 

1 comment:

Susanna Originals said...

Good article - nice to see one for Canadians. I've owned a store in PEI for 8 years, paid and was credited for my tax and after all this time, finally learned what ITC meant! Thanks! Love the government and their acronyms.