Conquer Sales Tax and Get On with Your Business

As a mogul, you have enough tiny worries nagging the back of your mind every day. Wondering whether or not you’re handling sales tax the right way shouldn’t be one of them!If you sell a product, chances are you’ve dealt with sales tax. And if you’ve grown a product-based business, chances are even better that you’ve run into some sort of sales tax snafu. This post goes over what on earth sales tax is anyway, gives you the tools to make sure you’re doing it right, and shows you how to put sales tax in it’s place so you can do what you do best – running your empire!

What is sales tax?

If you’ve never charged sales tax, you’ve likely at least paid it. Sales tax is a percentage of a retail sale that goes back to the state and/or local area in order to fund budget items like roads, schools and parks. Forty-five states and Washington D.C. all levy a sales tax, and many states get the majority of their budget from sales tax collection.If you sell products that are taxable (and most “tangible personal property” is taxable) then you need to be sure you’re on the right side of state laws when dealing with sales tax. And when I say “state” laws, I’m not joking. Each state makes their own sales tax laws, so as your business grows you may find yourself dealing with different sets of sales tax laws. But don’t worry – I’ll walk you through putting a lid on sales tax!

Here are 5 Steps to Conquering Sales Tax:

1. Determine Where You Have Sales Tax Nexus

If you have “sales tax nexus” in a state, then you are required to charge sales tax to buyer in that state. “Nexus” is just a fancy way of saying “significant presence” and every state is slightly different when it comes to what creates sales tax nexus. But these are factors that commonly create nexus for retail product sellers:

• • A location – Places like your home office, a store, a factory or a warehouse. You’ll always have sales tax nexus in your home state

• • Personnel – An employee, contractor, salesperson or installer

• • Inventory – Inventory stored for sale in a state creates nexus in most states

• • Affiliates – If someone refers people to your products in exchange for a cut of the profits you may have sales tax nexus in the state where your affiliate is located

• • A drop shipping relationship – If you have a supplier ship directly to your buyers you may have sales tax nexus

• • Attending a trade show – Selling items at a trade show, convention or craft fair triggers sales tax nexus in some states

 When you start out, you may only have nexus in your home state. Depending on how you choose to grow your business, you may end up with sales tax nexus in other states.If you have sales tax nexus in a state, your next step is to register your business with the state so you can legally collect sales tax.

2. Register for a Sales Tax Permit

Before you start collecting sales tax from your customers, you should register for a sales tax permit. Don’t skip this step! Most states actually consider it illegal to collect sales tax without a permit. (In their deepest, darkest suspicions retailers collect sales tax willy-nilly from buyers but keep it in their pockets rather than remitting it back to the state. But more on that later.)Just like with sales tax laws, every state is a little different when it comes to filing for a sales tax permit.

3. Collect Sales Tax

Once you have your state sales tax permit in hand, your next step is to start collecting sales tax from your buyers in that state. A great reference guide on state by state information can be found at https://www.ecommerceceo.com/online-sales-tax/One pro tip: If you have already been collecting sales tax in one state and are adding a new state, don’t forget to collect sales tax from buyers in the new state on all the channels on which you sell. If you are a multichannel seller, it can be very easy to simply forget to set up sales tax collection on one of your channels. Once you catch the mistake you may be stuck paying sales tax out of your own pocket. And you should never have to do that!

4. Report How Much Sales Tax You’ve Collected

As with many things in life and in business, how easy or how hard it is to determine how much sales tax you’ve collected simply… depends.It depends on how many channels you sell on, how many states in which you collect sales tax and how each state wants to see that sales tax broken down.The simplest states just want to know how much sales tax you’ve collected from buyers in the state. But the vast majority of states want to see how much you’ve collected broken down by state, city, county and other special taxing district. These are also “destination-based” sales tax states, which require online sellers to charge sales tax based on the buyer’s ship to address. So in this case, that means figuring out where the sales tax rate at each of your buyers’ locations and then determining what rate you charged and how much of that percentage goes to the state, city, county or other jurisdiction. Yikes!Fortunately, technology has come along to save the day. A sales tax automation solution will integrate with all the platforms you sell on and slice and dice your sales tax collected just the way your state wants to see it. No more dealing with spreadsheets, state tax tables and pounding headaches!

5. File Your Sales Tax Return

The last step to dealing with the sales tax cycle is to file your sales tax return with the state.You can file online, file by mail (if you’re old-fashioned like that!) or let your sales tax automation solution AutoFile your sales tax return.Every state is a little different when it comes to sales tax deadlines, but most want to hear from you either monthly, quarterly or annually, and most due dates fall from the 15^th to the last day of the month. April is what we call a “sales tax perfect” storm, where nearly every product seller has a sales tax due date.Always file a sales tax return even if you don’t owe a thing. States still want to hear from you just to know you’re still in business, and if you don’t file, some states will levy a penalty on you even if you didn’t owe a penny in sales tax!But there’s also good news. About half the states also realize that collecting sales tax is a major pain, and will give merchants a small discount if they file and pay on time. Don’t leave money on the table!

That’s it! You’ve mastered sales tax and put it behind you… at least until the next sales tax due date rolls around.

For more info about sales tax, check out our Sales Tax 101 for Online Sellers Guide!