If you sell both high and low tax items, then, under a sales tax audit, the auditor will pay close attention to the amount that you are selling of each. If you have a grocery store with very few low-tax items, the auditor may gross up your high tax sales to the industrial norm.
Transcript
All right, we’re back for another Q&A, and our first question is from Mehir P from Hoover, AL, and he’s asking: why is my auditor making a big deal over high and low tax items? Okay, so Mehir, thanks for your question. From my understanding, you probably have some type of a convenience store or a gas convenience store inside of a gas station in Hoover, AL, and you’re being audited for sales tax. Okay, so first of all, the auditor is trying to find out if you paid the right amount of sales tax on everything that you sold, and secondly, you’re asking what’s the difference between a high tax and low tax item? And why is this so important? So basically, when you have a retail outlet and you also have some grocery items as well, so basically a chocolate bar on one side being a retail item, and a head of lettuce being a grocery item, what’s going to happen is they’re going to look at the industrial norm. So if the industrial norm says, look you have a straight convenience store, why are 90% of your items taxed as low tax? It’s a good question, because when you’re selling a majority of retail items, like chocolate bars, chips, cans of coke or whatever else, you should be paying the higher tax. So grocery items get taxed at a lower tax rate. So if i were to walk into something like a fresh market it would be normal for things to be, or the majority of items, to be 90 of them, maybe even more, taxed at the lower rate because they’re grocery items. So in a convenience store setting, which I’m assuming you might have, you’re looking at the majority, maybe even 90 to 95 percent, being at the higher tax rate. Okay, so they’re gonna look at the industrial norm, and if the industrial norm says a convenience store of your size, of your nature, in and around Hoover, AL, should have 92 percent of high tax items and eight percent low tax items, they’re going to gross you up as if you’re missing a certain percentage. So if it looks like you’re 50/50 high tax and low tax, they might gross you up another 40 on your high tax to make it at the industrial norm level. Okay, so i hope that helped, and again, if you have any questions just keep posting them and I’ll keep answering them. Thank you very much.
