Mary Kay® Unrecovered Sales Tax

Now that everyone is working on their 2012 taxes, I get a lot of questions from QT’s about certain information needed to files taxes for their Mary Kay® business. One of the most asked questions involves Unrecovered Sales Tax. As always, we cannot provide specific tax advice. Please consult your tax professional for more information.

First, a bit of background about sales tax and Mary Kay®. When you purchase Mary Kay® products at wholesale from InTouch, you pay the sales tax for the retail amount. This is considered an expense for you. When you sell products you charge customers sales tax on the retail amount. This would be recovered sales tax. The questions arise when not all of this sales tax is recovered.

When you do not collect all the sales tax you paid to Mary Kay® you have unrecovered sales tax. There are several reasons you may not collect all the sales tax you paid. If you offer a discount or apply a coupon to a purchase and charge sales tax on the discounted amount, then you are not recovering the full tax that you paid. This also happens if you offer a Gift With Purchase and do not charge tax on it. Section 2 items are typically not sold to customers so the tax is not recovered, and you don’t recover tax on demo items.

So, the odds are you are going to have some unrecovered sales tax in your Mary Kay® business. The calculation for this is simple:

(Tax paid to Mary Kay®) – (Sales Tax collected from customers) = (Unrecovered Sales Tax).

To minimize your unrecovered sales tax you could charge sales tax for full retail amounts on discounted products and gifts with purchase. This can start to get a little confusing if you are doing your invoices manually. QT Office handles all of this for you. You have the option of charging sales tax on retail or discounted amount and charging sales tax on gifts with purchase with just a checkbox. QT Office also handles the recording of sales tax paid to Mary Kay® and the calculation of your unrecovered sales tax.

Taxes are a cost of doing business and one of the more confusing ones. Hopefully if you understand how Mary Kay® unrecovered sales tax works you can minimize that cost.

Did you know that if you use the QT Office manager your Unrecovered Sales tax will be tracked automatically for you?