how should i handle sales tax?
Pricing your inventory for a craft show can be tricky enough, but what about whether or not to factor sales tax into your pricing?
Scenario #1: Price items as desired, add sales tax at point of sale
In this scenario, you price all the items at your booth exactly at the price you want to be paid for them. A pair of earrings, for example, may cost $40. That’s how much you want to get for them, and that’s the price tag the customer sees when they pick them up. However, when it comes time to make the purchase, the sales tax is added on to this price. At the time of writing, Washington State Sales Tax is 10.1%, which would make the final amount this customer owes $44.04. Most customers (especially if they’re from a state that charges sales tax) don’t think twice about this – they’re used to the price inflating a bit between deciding to buy, and handing over their money. This is rarely a deterrent, as they know those extra few dollars are nothing either of you has any say over.
How do you handle this on the tail end of things? Well, assuming that you’ve been consistent at charging sales tax on every item you’ve sold, calculating how much sales tax you owe the state after the show is over is very simple: the total amount of revenue that you brought in over the weekend includes all that sales tax you’ve collected. To be exact, 10.1% of that revenue you brought in doesn’t belong to you. Whether you file your sales tax immediately after the show (this is mandatory for out-of-state vendors), or while filing other state taxes (more common for in-state vendors), the wisest option is to take the portion of your revenue that’s devoted to sales tax, and keep it separate from your other revenue so that you’re not slapped with a surprise bill when it comes time to hand that sales tax over to the government.
Scenario #2: Price items to include sales tax
In this scenario, you will factor the sales tax in as you’re pricing your items for the show. That pair of earrings you want $40 for? The price tag itself will read $44.04, and you’ll have clear signage at your booth letting customers know that all prices include sales tax. This is important to have clearly communicated to the customer – since many customers are used to mentally bracing themselves for the sales tax inflation that often happens at the point of sale, your tax-inclusive prices may seem unnecessarily high to them if they don’t realize the sales tax is already
However, there is a mental relief that comes from realizing this while shopping – knowing that the price they see is exactly the price they will be paying, and there will be no surprises at the register – and for some customers, this may actually help the sale. A second advantage to including sales tax in your prices is that you can opt to keep your prices at nice, round numbers. In the example above, rather than pricing those earrings at $44.04, you can round up to $45 even (or down to $44 if you wish), making for quick and easy cash transactions, not requiring a cashbox full of pennies and nickels – and that extra $0.96 you rounded up is yours to keep.
In either scenario, the customer will be paying the same amount of sales tax, and you will be required to keep track of that amount and submit it to the state later on.
The decision to make your prices tax-inclusive or not is merely a matter of preference, simplicity, and customer psychology. Think about this as you’re preparing your inventory and thinking about your booth display, and how you will present your pricing to your customers!