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How often do you check the sales tax on your receipts?

You may want to check more often to avoid getting overcharged.

Not so sweet deal 

According to WFMY, a local North Carolina news organization, half of the stores they tested overcharged sales tax on the sale of a Kit Kat bar (5 of 10 stores).

Three stores overcharged by 5-cents:

• The Krishna Food Mart
• Kim’s Grocery
• Jay’s Grocery

Two stores overcharged by 6-cents:

• Summit Shell Xpress Mart
• Sheetz

Pennies? Sure. But consider the implications if the miscalculation extends to thousands of transactions and hundreds of stores. Not only are consumers out extra cash, stores charging the wrong rate carry more risk of incurring penalties during a tax audit. The manager of the Krishna Food Mart told WFMY that the mistake was unintentional. Vowing to correct the rate, he complained that the state’s tax code makes it hard for businesses to comply.

Give me a break!

What’s so hard about taxing candy? It turns out that North Carolina is one of 20 odd states that apply a higher tax rate to candy than other food items. Here’s the catch: items that contain flour, like Kit Kat and Twix bars, are taxed at the lower rate because they aren’t considered candy. Confused? You’re not alone. The stores listed above likely overlooked this legal nuance and assumed Kit Kat bars got a higher rate like other candy items.

WYFM calls this “Candy Confusion.”

Beyond the candy aisle 

Candy Confusion in North Carolina is just the tip of the iceberg. There are over 10,000 sales tax jurisdictions in North America, each with its own sales tax rates. Combine that with state-specific taxability rules—rules like how to tax Kit Kat bars—and you have a recipe for confusion and error.

Case in point: Mr. Farneth of Pittsburg, Pennsylvania is currently suing Walmart for allegedly overcharging him sales tax on shaving cream purchased with a buy-one-get-one-free (BOGO) coupon. At the end of the day, Walmart could be on the hook for at least $5 million in back-taxes and penalties (after all, Mr Farneth is not the only customer who used a BOGO coupon).

The Walmart case and Candy Confusion in North Carolina show how complex state sales tax laws can cause companies large and small to commit basic compliance errors.

How confident are you that you have the right rates?

photo credit: velo_city via photopin cc