Tax Included in the Price
If tax is collected as part of or included in the selling price of the item or service, the tax needs to be backed out to arrive at the true gross receipts before the return is completed. This is allowed if the retailer makes known to the purchaser that the tax is included in the price which is charged. That can be done by posting a sign or by a notation on the receipt indicating tax is included in the price.
For example: A vendor includes the 6% tax in the price of all goods sold; for purposes of this example, assume local option tax does not apply. The taxable gross receipts are $250. Divide $250 by 1.06. The result - $235.85 - is the amount to be written on line 1 of the return.
If only the state tax of 6% applies, divide the gross receipts by 1.06 as shown in the above example. If a 1% local option tax also applies, divide by 1.07.
Exemptions
Sales made that are not subject to tax are reported as exemptions. Many taxpayers confuse exemptions with the types of deductions for expenses they are able to take on their income tax returns. Expenses of the business are reported on the IRS Schedule C, Profit or Loss from a Business, for income tax purposes, but are not included as exemptions on the sales or use tax return. For example, table or registration fees cannot be shown as an exemption.