Sales Tax Made Easy

Navigating the muddy waters of sales tax requirements.

“Oh, how I love sales tax!” says no one ever.

Sales tax is an inevitable of many businesses with the power to stop most owners in their tracks. Who should pay sales tax? How often should you pay sales tax? Is it a requirement? Where do I go to find out? Does sales tax apply to my online business or non-profit organization?

Whether you’re selling product on Instagram, Etsy, your website, or from your brick and mortar, here’s what you need to know.

What is sales tax?

Sales tax is a retail tax imposed by state and local governments and paid by your customer. Your state will have either a local, county, or state sales tax. In some instances, there may be a combination of the three. The difference between them are limited to the tax rate and the collecting authority.

When is sales tax applicable?

Tax rates and legislation vary from state to state. Local and county tax rates are often lower than the state imposed sales tax. Your state’s Department of Revenue will be able to give you all the rates that apply to your company’s jurisdiction. It’s your one stop shop for all things sales tax.

Do I need a sales tax permit?

In order to collect sales tax in your state, you may be required to obtain a sales tax permit. The permit (or license) application can also be found at the Department of Revenue. Their office is often the state’s authority on sales tax legislation, collection, and payments.

A permit is a license to legally collect sales tax in your jurisdiction as a retailer. Once approved, you will receive a certificate which includes a unique identifying number the state will use to track your sales tax activity – all returns, payments, and correspondence.

How do you process money collected as sales tax?

Manually tracking sales tax payable can be time consuming and daunting. Who has that kind of time?

With the evolution of e-commerce came the wonderful tool of online shopping carts. Most of the popular shopping carts easily integrate with your website and will allow you track inventory, gross sales, and the amount of sales tax you owe.

Proceed with caution! Not all shopping cart software was made equal. The more comprehensive solutions come pre-loaded with all state sales tax rates, e-filing capabilities, and payment requirements, while others may require you to manually enter that data. Pry before you buy! Ask as many questions as you can before making an e-commitment to a service provider.

Accounting software like QuickBooks can also track your sales tax – when used properly. If you do not have a strong understanding of accounting, I would recommend sticking to the online shopping carts. They are usually easier to navigate with a shorter learning curve.

When is sales tax due?

Sales tax is a prepaid, estimated tax due monthly or quarterly. Your filing schedule is determined by your sales volume. Businesses with a small sales volume are required to file a sales tax return with an estimated payment each quarter. Entities with larger sales volumes are required to file each month.

In most states, you may file and pay your sales tax online through The Department of Revenue. You may also mail in the traditional sales and use tax form with a check if preferred.

Does sales tax apply to online sales in multiple states?

In short, yes!

As a rule of thumb, if your business has a physical presence in a state, whether it’s you and your computer, an office, a store, warehouse and/or fulfillment center, or employees, you must collect and pay sales tax in the state where the people or property reside.

For example, if a California business owner opens an online boutique and sells to customers in other states, sales tax should be collected and paid to the state of California only. However, if the California business owner decides to hire employees in Georgia to help boost sales on the site, the owner must pay sales tax in Georgia for all sales generated by the Georgia sales team and a California sales tax on the remaining sales. Now that the California business owner has employees in Georgia, by law “nexus” (sufficient physical presence in a state) has been established and sales tax must be paid there.

You see how one decision can complicate things?

If you do not meet your state’s requirements for having presence in a state, you are not required to collect or pay sales tax in that state.

What types of transactions are exempt from sales tax?

If you make qualifying sales you are required to collect and pay sales tax, unless the product, service, or organization is exempt from sales tax.

If a customer is not required to pay sales tax, they will have a current tax exemption certificate. When being presented with a tax exemption request you want to make sure the form is valid. Here’s what you should look for when reviewing an exemption certificate:

  • Is it expired?
  • Was it issued by the state I have to collect sales tax for? Each state requires a state issued exemption certificate. You cannot use a California exemption certificate in Georgia.
  • Does the certificate look altered?
  • Does the certificate list the tax exempt number and legal organization name?

If your customer cannot produce a valid tax exemption certificate, you should apply the sales tax to their order.

Common items/organizations that do not pay a sales tax:

  • Non-profits
  • Manufacturers and raw material producers
  • Wholesale items that will be resold
  • Casual sales (Example: one day garage sale)
  • Select group of professional services (Example: Consulting)
  • Food and medicine (not applicable in all states)

With thousands of sales tax jurisdictions in the United States comes the possibility of thousands of requirements and compliance rules. Who can keep up with it all? No one!

Do your due diligence. Research filing requirements in your area, consult with a tax specialist, or invest in an accountant in your sales area prior to selling products or services. It’s sure to save you time and money.

 

Do you collect sales tax? What are some ways you track sales?

 

 

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