Small Business in WI - Need Sales & Use Tax Advice

by Clearwater4445. Posted on Sep 15, 2020    15    38


I recently registered my small business in Wisconsin and ended up getting a seller's permit in the mail. This started out as a hobby so I did not register the business right away. After registering I got a few bills stating that I owed an estimated $1,000 in tax plus interest and late fees for multiple quarters.

A little background... I opened my Etsy November 2019. I do a decent amount of sales through venmo, cashapp, paypal, etc. I ship to states all across the U.S. I did 8-9k in gross sales in 2019 and 2020 YTD is 20-30k. I get products from China but I also buy from sellers here in the US which I then resell their products. While I am making those amounts in gross sales there are lots of shipping, material, product costs. Am I correct that those expenses only get deducted when I report income on yearly taxes?

In doing some research it looks like I should have been filing quarterly reports on non taxable income. I now have the option to go back and submit these tax reports but the instructions are complicated and confusing. Before I do that I want to confirm that I need my business even needs this type of permit/tax type.

A few other questions... Do I only count income that was not previously taxed (ex: venmo vs etsy)? The WI sales tax is around 5% but I am reading that use tax is also 5%. Does that mean these are combined at 5% or is it an individual 5% that will end up costing be 10% on each sale?

I know each state and case is unique but any advice or guidance is very much appreciated.


Comments

  Clearwater4445 1

Also.. I just completed the return for a past quarter now and only had $51.14 in taxes owed. It said on the bill that once I filed my tax return it would be processed and the amount owed will be changed or cancelled. Right now it is showing the $51.14 added to their estimate of 1k+ instead of replacing the state's estimate and that the return is pending..probably since it is a Sunday.

Anyone know how fast it gets processed and adjusted? Unfortunately this bill is due tomorrow but I was hoping the estimate would immediately be removed once I submitted the quarterly return.

  Clearwater4445 1

Does anyone know if I need to pay use tax on each purchase of product to resell if I was not charged tax at the time of purchase? Is there a way to get an exemption certificate for resale of products?

stump36 1

The sales tax portion would be easy to clear up. Etsy had been collecting and remitting all necessary sales tax on your Wisconsin orders due to the marketplace facilitator law in place as others have suggested.

A sales tax permit only needs to be kept active if you purchase items tax exempt and you need to provide a resale certificate to your suppliers. With the marketplace law in place, you won't ever have any taxable sales as long as you don't branch out to sell outside of a marketplace.

You'll need to gather your sales for the open periods and file as someone else suggestes. You would start with your gross sales and then subtract that same figure as a deduction in marketplace sales resulting in $0 being owed.

Your question regarding the deductions for inventory and shopping costs would be relevant to income tax. This is a tax that you would seperately be responsible for filling on an annual basis.

  Clearwater4445 1

Thanks for clarifying. I don't purchase items tax exempt so maybe I didn't need the permit in the first place. The problem is I did branch out to sell outside of etsy which is why I sometimes took payments through venmo and cashapp.

stump36 2

If those sales went to people in WI then that would be taxable and you would need to keep the registration. If they were to out of state it would likely fall under the economic nexus requirements and therefore not require tax be collected

Stoned-Mason 1

Pretty sure it’s 5.5% sales tax in Wisconsin

YouveGotSleepyFace 2

Sales and use tax is completely separate from income tax.

This is the tax you pay, as the consumer, when you purchase something online or in-store. You should be charging your buyers this tax on top of the purchase amount.

Unfortunately, if you haven’t been doing that, you will likely just have to pay it and consider it a lesson learned. But you should definitely edit your settings on Etsy so the sales tax is added to the buyer’s total....or at least edit your pricing to include the estimated taxes.

Sales and use tax isn’t difficult once you get the hang of it, but the rules vary a ton from one area to the next, and you may owe in more than one jurisdiction. For example, some cities, counties, AND states all charge this tax, and you’d owe to all three. But it really depends on the laws in your area.

You should seek a CPA or tax attorney’s assistance to get everything set up correctly.

  Clearwater4445 1

I appreciate the help. I will contact a tax attorney as soon as I can because I am really new to all of this. Does this mean I need to look at each individual sale to look at the tax regulations in that area?

alento_group 1

>Does this mean I need to look at each individual sale to look at the tax regulations in that area?

Yes - but ... you only collect sales tax on sales delivered to WI, not out of state ... so I would imagine your bill will be even less if you are selling nationwide.

takatuka 1

I just checked and turns out Wisconsin is also a destination based sales tax State which I hate personally. So you'll be collecting taxes based on different counties. Fun fun

YouveGotSleepyFace 1

Yeahhhh...that sounds like a nightmare

urzathegreat 2

Could you explain more about how you got the $1000 plus bill? Was it from the IRS? The state of Wisconsin? I did the exact same thing as you, starting a hobby business only to then turn legit and I never got a bill for past “business” from when I was a hobby. I don’t quite understand how you got “caught”? Thanks!

  Clearwater4445 2

It was from the Wisconsin Department of Revenue. My tax advisor recommended I register for a business license. A week after registering, I got a seller's permit followed by the bills of the estimated 1K+ amounts. Mine started as a hobby too but I got concerned when I started making a lot in gross sales. Now I am second guessing if that was the right choice. May I ask- when did you think it was necessary to distinguish yourself as a business versus a hobby?

urzathegreat 2

Hmm I’m still a small fish and I don’t have a “tax guy” so I’m doing my business completely on my own and as such I have no knowledge basis to go on so consequently I’m not quite educated on taxes as perhaps I should be, but I still don’t understand how Wisconsin caught you haha. I’ve been selling on eBay and Etsy for about 2.5 years with... Year 1: $100 gross sales, 5 orders. Year 2: $8000 gross sales, 230 orders. Year 3: $13,000 gross sales, 234 orders by July. It was at this point that I decided to file for an LLC and EIN. Up until this point I hadn’t even been buying things with a sales tax permit and I was paying sales tax when I was sourcing. I was paying my federal and state taxes via a IRS schedule C but that’s it... I never logged paid regular state taxes because again, I was never registered my business with the state. I only went legit because I had proved my business was viable and not a side hobby and I wanted to pocket that extra 10% or so in sales tax that I was paying when sourcing because I didn’t have a sales tax permit. Also — I churn credit cards as a side hobby for my personal travel use and I wanted to start applying for business credit cards under the EIN.

SintacksError 2

Not OP, but it's probably a sales tax estimate from the state of Wisconsin. Sounds like OP hasn't logged onto the states tax site and either paid, or filed "0" for several months. The state tends to overestimate the taxes owed to encourage businesses to file.

  Clearwater4445 1

It did seem like the amounts were rough estimates, but I wasn't entirely sure so thanks for confirming. I obviously don't want to pay more than I have to, so do you think that there's a good chance if I filed for those quarters that I'd actually owe less than what's been estimated?

SintacksError 2

Unless the state has different sales tax filing requirements for different businesses you'll have to fill out for monthly- if you didn't keep track of that for 2019 your best bet is to file "0" for 2 months each quarter and then input your sales tax for the third month. In order to hit $1000 in sales tax owed you'd had to have had roughly $18200 in sales, so your sales tax should be less than that. The state is going to charge you fines and interest, no way around that, but it's better to get caught up. If you don't have enough money to cover your sales tax total, pay what you can and request a payment plan- they are usually pretty easy to work with. For 2020 also file- start keeping track of your monthly sales so you can pay the sales tax on time- for my account, if i pay on time I get a small discount, so it's worth filing on time.

Idk how etsy works, but if you can, add sales tax onto items at the checkout, so the customer is paying the tax and you ard just collecting it for the state. Also then you aren't decreasing your income/profit by 5.5%. If they don't allow it, increase your prices across the board to cover the tax- make sure you account for that though (example: if you sell a thingy for 1.05 tax included, your taxable sales are .99 with the .06 collected for sales). If you have any more questions, feel free to ask or PM me, I've been in business since 2012 now, I've messed up my taxes my fair share of times, so I've dealt with our system here a decent amount. Good luck!

  Clearwater4445 1

Ok thanks so much. I saw the payment plan option on the DOR site. I'll explain more about my understanding of etsy sales tax in another comment below. That makes sense - they are definitely over estimating the sales tax owed if just 5.5% gets taken out of each sale. I can go back and figure out my total sales from each quarter since mine is set up to submit a return each quarter to get a more accurate sales tax amount. I guess I'm just confused on if I only count my sales in venmo/cashapp since those were not taxed or if I include etsy as well.

  Clearwater4445 1

It seems like etsy charges sales tax when I send to certain states because totals vary even when people buy the same item. It's hard to tell though because etsy has its own listing, renewal, and transaction fees. Again, I think etsy is automatically charging sales tax BUT when I go into payment settings there is a tab for sales tax and it states, "Here you can set a tax rate for each US state or zip code based on your own tax requirements. This tax will be applied to buyers based on their shipping address and will be included in the final price paid.

We’ll only apply tax to orders that ship to a state or zip code where you’ve set a tax rate." Then I can go add states but there is a limited list (I'm guessing because it only applies for some states).

In another spot on the etsy website it says " Etsy automatically calculates, collects, and remits sales tax for items shipped to states that require marketplaces such as Etsy to collect sales tax." I feel like these two contradict each other.

urzathegreat 1

Curious. I sell on Etsy and on eBay and both marketplaces automatically charge, collect, and pay sales tax for you. You don’t need to charge additional amount to account for the taxes, those two marketplaces automatically add it onto the net price of the item when a customer checks it out. The two marketplaces then give us a spreadsheet that details the exact amount collected and paid to the states for the taxes. When I file my monthly state taxes for the state of Oklahoma I always put my “Total Sales” amount as my “Marketplace Facilitator Sales” amount. I pay zero dollars in taxes every month when I file.

I’m still trying to figure out how he got caught?? It must have been the massive 1099s That Etsy was submitting to the IRS? I don’t understand how his state realized he was making so many sales.

  Clearwater4445 1

I thought etsy automatically applied the tax as well but did you need to go into your finance/payment account settings and add states to your sales tax settings? See my comment above for more info. I think part of my problem is that I don't do all business on marketplaces and therefore some of my sales haven't been taxed previously.

urzathegreat 1

Good question. Let me check.. give me a little bit, I’m out and about.

SintacksError 1

I don't think he got caught so much as he didn't file. I have no idea how any online shops work as a seller, I have a brick and mortar restaurant, but I imagine there is some kind of error on his end if the collect tax. He might have set up his business incorrectly with the state and might not need a sellers permit. I was only speaking to how you pay sales tax in Wisconsin in general.

  Clearwater4445 1

Exactly. When I registered my business I had to put in my start date so I put the month I opened my etsy and now they are backtracking. I have the same feeling that I may have not even needed to do get the seller's permit; however, on the DOR website it states, "A seller's permit is required for every individual, partnership, corporation, or other organization making retail sales, leases, or rentals of tangible personal property or taxable services in Wisconsin, unless all sales are exempt from sales or use tax."

I think my best option for now is to go back and calculate my quarterly sales to bring these bills down, especially since they're due soon. Then I need to do further research on if I even need a seller's permit. I don't know what the other options are other than a seller's permit and can't find clear answers online. I don't get exactly what differentiates a hobby from a full on business that needs permits. I was just trying to be on top of it since I will need to report a good amount of money on my 2020 income tax forms.

SintacksError 3

I'm in Wisconsin, but I own a restaurant, I pay sales tax monthly, as far as I know that's how its done here. Sales tax is 5.5% (0.055) unless your county/town has an additional tax. If you had $0 sales in a month, make sure you file $0 on the "my tax account" site. The state frequently over estimates the tax you owe if you fail to file, i don't think you'll get fines or fees for any months where you had $0 in sales, you just need to select "$0 sales" or "no sales" on the state's tax site. In general they will work with you if you are behind on taxes.

lucerndia 1

>I pay sales tax monthly, as far as I know that's how its done here.

It depends on a number of factors. In 2018, I was paying once a year. 2019 and 2020 I'm paying quarterly.

SintacksError 1

I think brick and mortars, which I am, must always pay monthly, I've never seen another option.

lucerndia 1

I am both brick and mortar and online. I have a storefront in West Bend

lucerndia 4

Also in Wisconsin. You need to report your taxable sales either quarterly or yearly here - https://tap.revenue.wi.gov/mta/_/#1 and will probably have to go back and enter 2019 numbers to fix the $1000 bill. WI sales tax is 5% and an additional .5% if you are subject to the stadium tax.

>While I am making those amounts in gross sales there are lots of shipping, material, product costs. Am I correct that those expenses only get deducted when I report income on yearly taxes?

You only report your taxable sales to the state for this portion. You report everything on your federal and state taxes come April.

Edit - .05 to .5

  Clearwater4445 1

One more question.. So my only taxable sales are for sales and business that was done in Wisconsin, right? Let's say I made 5k in Q1 but only shipped a few packages to WI, I only report the few sales that were done within my state?

lucerndia 2

It’s multiple lines. Total sales and then total taxable sales. So 5k on line 1 and whatever you sold in WI on line 2

  Clearwater4445 1

Got it. On my end it looks a little different - when I am in the DOR site line 1 is total sales but line 2 is "Sales for which you received exemption certificates". On line 3 I am now seeing it states "Sales that occurred outside Wisconsin, real property, groceries, and highway fuel, etc." If I am understanding correctly I can subtract all sales outside of WI (meaning orders I shipped to other states) and therefore only my sales within WI will be taxed for sales tax?

lucerndia 1

Yep

  Clearwater4445 2

Thanks for the help. So it comes out to 5.05% - do you know if there is there any additional use tax or is that included in the 5.05%?

So to clarify I report my sales that were not already taxed during the transaction? For example, venmo does not apply tax during the transcation but etsy does. I am unsure if this it etsy tax or sales & use tax.

lucerndia 1

>do you know if there is there any additional use tax or is that included in the 5.05%?

That's all in unless you have stadium tax. For example I am in Washington County and charge 5.6% tax instead of 5.5%. ( I edited my above comment, its .5 not .05%)

> For example, venmo does not apply tax during the transcation but etsy does. I am unsure if this it etsy tax or sales & use tax.

you need to charge them the tax if the sale is tax eligible and not wait for venmo to collect it. Same for etsy

youre_an_oxymoron 3

Don't forget about your county tax as well. Its seperate from any stadium tax. I'm down in Rock county so I have to collect .055 on my sales. The extra .005 being county tax.

Ahhh the use tax. So this is if you were to purchase something online and that vendor did not charge you WI sales tax you are supposed submit the use tax. The same amount, its just you pay it instead of the seller. Also if you were to buy something tax exempt for resale, but then you don't resell it, you just consume it. You would own the use tax on that as well.

WI are sticklers for this type of tax. I am currently under audit for sales and use tax in WI. My crimes include being ignorant of what use tax is, and not realizing if I buy something online I would owe use tax on it.

I would not suggest taking any shortcuts in Wisconsin when it comes to sales and use tax. They are aggressively searching out violators.

  Clearwater4445 1

Got it. Good to know - sorry to hear you are currently under audit. Did you not pay the use tax over a long period of time and then they eventually figured that out? Also... I am constantly buying product to resell. Do I need an exemption certificate or did I read that sales of resale are automatically tax exempt?

youre_an_oxymoron 1

I got "randomly" selected. After they saw my sales tax reports matched up perfectly they went on to some equipment I bought online during the time I was setting up my business, four years ago.

I have resale certificates setup with all my vendors that sell to me without sales tax. Luckily I only deal with about a handful.