The world of tax can be extremely confusing, with rules differing between states, but getting it right is crucial to your company’s success. As your business evolves and changes over time, your sales tax obligations may also change or expand, so it’s vital that you’re effectively managing your taxes. In this blog, we’ll take you through the ins and outs of sales tax management, so that you can feel that much more confident in your finances.
What is Sales Tax?
If you’re a business that sells taxable products, of which the vast majority are taxable, then you’re required to collect tax from your buyers. Products that are excluded from sales tax are: wholesale items, raw materials and sales made to nonprofits. Sales tax is pretty simple if you have one physical location and don’t operate in the online markets, but with most businesses present online, it becomes a little more complicated.
Selling products online means you’re operating in a number of different states, many which have different tax rules and regulations, so you’ll have to collect different rates of tax from buyers. This is determined by something called a sales tax nexus. A sales tax nexus is where a business has enough of a presence in a particular state, using their infrastructure to make money, that they should be collecting sales tax from buyers and paying it back into that state. A nexus could be determined by factors such as:
- A physical location
- A significant volume of e-commerce
To collect sales tax from buyers, a business needs a sales tax permit from every state in which you’re considered to have a sales tax nexus. Each state will then assign you a tax filing frequency and tax filing due dates.
Top 8 Things to Know About Sales Tax
Sales tax management can be quite a daunting task! So, we’ve pulled together eight top tips when it comes to understanding and managing this tax well.
Keep Rigorous Financial Records
The first step in effective management of your sales tax is to ensure that your financial records as a company are organized, clean, and in order. This will make staying on top of your tax responsibilities that much easier, as you’ll be able to clearly see your invoices and exactly where your sales are coming from.
Know Each State’s Deadline Dates
This is especially pertinent for businesses that have a large volume of online sales across a number of states. Each state will have its own deadline on when sales tax is due, so you as a company need to ensure you’re aware of each of the relevant deadlines and stay on top of them all. Creating a calendar to mark each of your due dates will help in tracking these dates and maintain regular tax payments.
Know the Method of Payment for Each State
As well as knowing the exact due dates for payments, it’s also a good idea to check the method in which each state receives these payments. Some may accept a check, whereas other states may need you to make your payments online.
Ensure You Have the Proper Permits
As we’ve already mentioned, every business needs a sales tax permit from each state it operates a nexus in. Therefore, before you even think about making a payment, you need to make sure that your business has all the needed permits to collect this tax from buyers in the first place.
Collect Sales Tax on All Your Channels
Most businesses sell their products through a range of channels rather than the traditional one physical location. And even with e-commerce, this can also contain a number of channels, from a company’s own website to social media platforms – all of which requires sales tax to be collected.
File a Sales Tax Return Even if You Didn’t Collect Any Tax
State authorities still want to be able to check in with registered businesses, even if they didn’t collect any sales tax in a particular taxable period. And so, you still need to submit a sales tax return even if that tax is zero, or you could face having your permit revoked.
Stay on Top of Changing Rules in Each State
As each states has its own tax rules and regulations, they also make their own updates and changes to those rules that businesses are expected to keep up with and adhere to. Therefore, it’s key that your business stays up to date on the rules of each relevant state to ensure your fully tax compliant.
Understand the Penalties for Any Mistakes Made
As well as knowing the tax rules and regulations for states, it’s also important to know and be aware of what the penalties are for late or incorrect payments. This is so you and your business are prepared for all types of scenarios (even accidental ones!), and avoid any ongoing legal issues.
How to Ensure Sales Tax Compliance
Compliance with taxes is key to the longevity of your business, and the key to continued and sustained growth. It means you’ll avoid any serious or ongoing financial or legal issues, and can rest assured that you won’t have any shock tax bills to pay or legal action to contend with. But tax compliance isn’t something you have to face alone. We always recommend working with a tax professional to ensure your finances and taxes are in order and you’re making the right payments on time, ensuring full compliance with the law.
Simple Startup can manage and file your sales tax filings on your behalf as an add-on to our accounting services, or as part of our tax services. If you’re struggling with staying on top of your taxes or don’t know where to begin with your tax compliance, then we’re here to help! Grab some time on our calendar today and see how we can support you in managing your taxes and implementing best practices within your business.