Jerry D. Wilson
Smart Tax - The RIGHT Way Of Collecting Sales Tax
The History
Inclusive sales tax has been around since the creation of the sales tax. It is simply selling the item with tax included in the price. This is very popular in European countries and Canada. In the United States it is most popular in bars and for admission to movie theaters and theme parks.
For the purposes of calculating the sales total and change due this makes perfect sense. In operations such as bars, this is a perfect application for inclusive tax. Charge a rounded up price for the drink and include the tax in the price. The sale is easily tallied and change given without much need for small change.
To compute the actual price of the item a calculation must be made that will mathematically remove the tax from the total price charged. For example, if you sell an item for $3.00 with tax included in the price and the tax rate in 6% you must then divide $3.00 by 1.06 to separate the tax from the actual selling price of the item. In this case the item sold for $2.83 and the tax collected is $.17. If the tax rate was 7% then the selling price would be $2.80 and the tax collected would be $.20.
The Need
The need for special tax calculations arise when you sell an item in the restaurant where the tax is added onto the sale but the same item in the bar has the tax included. If you sell a drink from the bar in the restaurant sales tax will be added to the check presented to the customer. The same drink served in the bar will have the tax included in the price. As the restaurant or bar owner, you are suffering the loss of the sales tax for every drink served in the bar area. In essence, if you have a 7% tax rate you are suffering a 7% loss on all sales at your bar.
People have become accustomed to paying tax in a restaurant. They hardly look at the tax line anymore. They look down the items on the check and then the total. Most often if the bill looks close they pay without any attention being paid to the tax line.
The way we look at this situation is simple. A $3.00 drink in the bar includes the sales tax. The same drink in the restaurant is charged $.21 sales tax, assuming a 7% tax rate. In the restaurant the customer pays the sales tax. In the bar the restaurant/bar owner pays the sales tax.
Therefore, the need for a smarter way of calculating sales tax for bar sales.
The Solution
The Smart Tax feature in some point of sale systems does all the work for you. No server or bartender intervention or decision making is necessary.
When a drink is rung up at the bar the tax is assumed to be inclusive. This is no different from what you are probably doing now. A $3.00 drink simply rings up as $3.00.
However, if a food item is added to the tab or ticket then the software changes the tax status for the entire ticket to be tax exclusive and the drinks now have tax added to their total.
Your customer is simply being charged the same price as your restaurant customer, nothing more. Instead of the restaurant or bar owner paying the sales tax the customer is now paying the sales tax.
Is this legal? Absolutely! You are charging the same price in the restaurant. Why not collect the tax the same way? Your bar customer is paying the same amount as a customer in the restaurant. You are not taking advantage of them. You are simply putting them on a equal plain with every other restaurant customer.
Worried about the "Tax Man"? Don't. You are actually collecting a few pennies more with a Smart Tax sale than you would using the inclusive tax method of collecting sales tax.
The Benefit To You
Let's look at a couple of sales and how they would add up differently using the Smart Tax feature.
Bar Sale
Drink $3.00
Drink $3.00
Food Item $4.00
7% Sales Tax $ .28
Total Sale $10.28
Restaurant Sale
Drink $3.00
Drink $3.00
Food Item $4.00
7% Sales Tax $ .70
Total Sale $10.70
The difference between these 2 sales appears to be only the $.42 in sales tax. However, most people forget that there is tax to be paid from the bar sale as well. The $.28 sales tax paid by the customer must be added to another $.40 that is paid by the restaurant/bar owner on the 2 drinks sold. This is nothing more than a reduction in the profits of your business to pay the sales tax for your customer.
With Smart Tax the customer pays the sales tax on bar sales with food items. Your profits are yours and not the government's.
In a bar operation doing as little as $250 per day the monthly savings from this feature could be as much as $525 per month. Imagine what yours could be!
“CPA - Tax Moms” are trade names given to Accounting and Tax Professionals who chose to work in an “relaxed” environment. 
