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Sales Tax You Say?
Pawn Family & Friends
Today’s blog is inspired by some content going around on one of the FB channels that is pawn related. This topic has gone around for generations as far my experiences are concerned and I would like to share my overall opinions about various practices in use along with the pro and cons of such usage.
One of the questions posed has been about sales tax – should I eat it, or charge what is owed by state law?
Should we back the tax in and just give an out the door price and eat it, or charge the tax like most every other retailer on the planet?
IT is a series of good questions and debatable ones at that.
For the record, if you go to a Walmart store, or Home Depot as an example, you do NOT have an option to ask them if they can “skip” the tax. I would ask, “why should that be a customary action in our industry”?
That could be followed along with how your pricing your inventory. Do you price to negotiate, or do you price to SELL your inventory and be done with it?
In my case, after working the loan counters along with managing and owning my own pawnshops along with many other aspects in my career in the Pawn Industry, the sales tax dilemma has been around for as long as I can recall after some 45+ years in this Industry.
Point in case, I recall after buying one of our stores in Florida back in 1997 when we formed the Pawn Max brand, having to literally take a keyboard out of the hands of a customer trying to walk out the door with it, as he was arguing with me about how he does not pay sales tax and was sending the item to his kids in Haiti!
Not to say it was a knock down drag out, but it was a scene. My principals are such, that I gave a very good price on the item to sell it, and was not going to “eat” the tax. In Margate Florida at that time, I believe the effective sales tax rate was 8.25% if my memory serves me right.
In that scenario, if you back that tax into your gross sale amount, you are eating more than 10% of it’s gross sale amount by doing that. If your store averaged 1 million a year +/- in gross sales, that is 1/10th of a million dollars of gross sales revenues you would theoretically be losing.
The business model that I have been teaching and consulting with for over 20 years now, has been, and remains to be, “value price your inventory, put it on the shelf and sell it for what it’s worth”.
I will break it down this way, if you have $100 bills on the wall, priced $89, they will sell all day long at that price no negotiation required. Same principle can and DOES work if you price you general merchandise and other the same way.
Price it to sell it and get rid of it.
One thing still remains very true today, there are three types of pawnbrokers out here today:
Which one are you?
If the product begins to age, it goes through an automatic price reduction process in our world, till it eventually gets sold.
If you price product what you will actually take for it, you may find, it sells much quicker, easier, and also expedites inventory turns and yields which far exceed margins if you understand what you are doing!
Unfortunately, most in this industry do not even know what inventory yields are and focus purely on margins. Either way, sales tax is a way of life and the only exceptions in our world is, if they are a nonprofit, or have a resale certificate that allows you as a merchant to NOT collect the sales tax, all others, pay your sales taxes.
It’s all in delivery as well folks!
I have said for some 30 years, sorry, we just collect it, if you have a problem with that, here is the phone # to the governor of your state, give them a call and see what you can work out!
AS far as pricing is concerned, unfortunately out of the 1000+ pawnshops I have been in, in the last 30 years or so, more of us in the industry still overprice their inventory in hopes the ghosts of the Titanic will come shop them who have never been to wally world or homeless depot, and buy their over priced product.
That has to be the logic, because I see it all over the place today all over the US of A!
Technology allows for your customers to be more informed than ever before, and they have thousands of options at their finger tips to buy most products.
Yes, many of us in this industry believe people are just too stupid to shop deals, or they are saying, “everything in our store is over-priced, what’s your offer”?
The latter is sending a whole litany of wrong messages. For those of you who have multi-stores, or experience turn over in personnel, teaching how to high price, low price, meet me in the middle price is a dying artform with most of today’s generation. I do say most, not all!
Here is an example of pricing inventory to sell more aggressively, increase your inventory turns, increase your inventory yields, generate more cash flow, more customer transactions, and just make more money:
This is a 2-year snapshot of one of clients we converted from pricing on margin, to pricing on turns and yields. Guess what, we collected sales tax on all sales that were nonexempt, or non-tax sales. For the same, we more than doubled sales revenues while almost doubling our overall return on the inventory as just one of our asset categories.
Sales revenues doubled
Customer transactions doubled
Inventory turns went from .94 in year one, to 3.58 in year two
Inventory yield rose from 51.02% in year one, VS 99.8% in year two
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