Can a company charge sales tax on free products?
I hosted a party at my home and was able to earn so much in free products depending upon sales from my guests. What I don’t understand is that the party rep is trying to charge me sales tax on the full cost of the items that I chose as my free gifts. Is this legal? How can I pay sales tax on something I am not even buying?
That’s governed by State law. Some states levy sales tax on the net sales price, including free goods, meaning you’d pay nothing. Others levy on the normal selling price before the application of any price reductions, coupons, or freebies.
The one thing that you didn’t ask, but I’ll provide it anyway is the income tax treatment of the free products you received. They are taxable as ordinary income at their normal retail value, less the sales tax that you paid. This is treated as Self-Employment income so you report it on Schedule C when you file your tax return. If the net profit is over $400, you need to attach Schedule SE to calculate the Self-Employment tax. If the value of the free goods was $600 or more you should receive a Form 1099-MISC for it, however even if you don’t receive one you still must report the income as noted above.
She paid sales tax on those products when she purchased them from the company. She is attempting to pass that cost on to you. While it may be disturbing it is not illegal.
This is the 1st I have ever heard of this. I have heard of paying for shipping. But I have never heard of paying tax on an free item.
Most places that’s what they are required to do – it depends on your state law. You don’t have to pay for the product if the company discounts it to you or gives it to you free, but still usually pay the sales tax on the full price.