If you’re overwhelmed at the thought of making sure your business is in sales tax compliance, you’re not alone. New state laws pop up almost daily, and filing due dates change frequently. What was required yesterday might not be mandatory tomorrow.
Here’s a primer on how to get started, when to collect sales tax, and how to stay compliant.
Sales Tax Compliance: Determine where you have nexus
There are two common instances where you must collect sales tax from customers in the United States. This is through physical and economic sales tax nexus. Quite simply, these are fancy ways of saying you have a “significant presence” in a U.S. state. Factors like a location, personnel or inventory stored for sale in a warehouse create sales tax nexus in a state. Each state is different however, so make sure to learn what creates sales tax nexus in every U.S. state here.
Now, in addition to sales tax nexus, you must also collect sales tax if you meet economic nexus. The June 2018 Supreme Court ruling of South Dakota v. Wayfair ruled that states can apply their own sales tax laws to out-of-state retailers based on economic activity. If you’re selling a high volume of products into a state that has passed economic nexus laws, then you’re subject to their thresholds. One thing to remember, each state has their own threshold, so take note that not all states are the same.
Sales Tax Compliance: Register for a sales tax permit (or permits)
What happens after you have determined you have sales tax nexus in a state? You’ll need to register for a sales tax permit in each state you have nexus. Although it might seem like an extra hassle, it’s illegal to collect sales tax from your customers without a permit.
Sales Tax Compliance: Start collecting sales tax across your sales channels
What happens once you have your sales tax permit? You’ll need to enable your online shopping carts and marketplaces to collect sales tax from buyers in the states where you have nexus. Depending on which marketplace you are selling from, you’ll want to keep current with the most recent marketplace facilitator laws. These laws can impact sellers in various states across major platforms like Amazon, Etsy, and Walmart, among others.
If You’re Already Collecting Sales Tax from Customers
Double check your nexus.As your business grows, your sales tax nexus can change. You may find yourself needing to collect in additional states. What happens as new states pass economic nexus laws? You’ll want to rely on a technology provider or a dedicated resource like this to keep up with where you must collect sales tax.
Don’t forget the zero return. You may not have had any sales tax for a month or more. However, you are still on the hook to let the state know you’re in business. You must file a zero return. Similar to economic nexus and marketplace facilitator laws, each state has their own requirements for zero returns differ, as do the consequences. So keep up with your state’s laws in order to remain compliant.
Check for rate changes. States often change their sales tax rates at the beginning of the year or in July. However, states have been known to change rates at any time during the year! Do you have any custom rates set up? January is the perfect time to be sure those rates are still correct. eBay is a good example of a place where sellers set custom rates. If you sell there, check to make sure you’re collecting the right amount of sales tax from your buyers.
Hopefully, after reading, you’ll feel more confident about sales tax compliance.
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