Relax Youve Put A Lid On Sales Tax
Once youve run through these steps, youre finished with sales tax for now. Your next step? Put your next sales tax due date on your calendar and get ready to do it all again.
About the Author: Mark Faggiano is the founder and CEO of TaxJar, an app that pulls in sales tax collected from all the channels where you sell, compiles your data into return-ready reports, and will even AutoFile your sales tax returns for you in 26 states . Sign up for a 30-Day TaxJar free trial today and put a lid on sales tax!
Not Paying Sales Tax But Should Be
Start with a nexus study. If youve got more time than money, you could try to do it yourself, but if you have a large volume of sales, I dont recommend it.
A Sales Tax Nexus study will use all of your sales data to tell you where you have economic nexus, according to current regulations. It can also take into account exemptions for products like food and clothing . Generally a CPA or sales tax expert will conduct the study. At ECOM CPA, we have a dedicated sales tax specialist for this.
This study will allow you to find out if there are states where you may be delinquent and should file a past sales tax return. If so, your next steps will be to get the necessary permits in order, & start collecting sales tax.
Overview: What Is Sales Tax
Sales tax is a tax levied on the sale of certain goods and services. Sales taxes are charged by 45 states and many local governments, and theyre generally collected and remitted by the seller.
When sales taxes aren’t collected by the seller, which has often been the case with interstate sales, state and local governments generally require their residents to pay use taxes on the purchases. Use taxes are simply sales taxes remitted directly by the consumer instead of the retailer.
For example, say you live in Philadelphia, where sales are subject to a 6% state tax plus a 2% county tax. You go online and buy $10,000 of furniture from an online store in Oregon. At checkout, you realize that Oregon has no sales tax. You might be excited, thinking you just saved yourself 8%.
But you know what they say about death and taxes. The state of Pennsylvania and Delaware County are going to expect you to pay that 8% back in use taxes.
Businesses are expected to pay use taxes on their untaxed purchases when filing sales and use tax returns. Consumers are also expected to report untaxed sales and pay use taxes on them through their annual state tax returns.
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Faqs For Sales Tax Licenses
Is there a fee for a sales tax license?
No, there is not a fee for a sales tax license.
Who needs a sales tax license?
Individuals or businesses that sell tangible personal property to the final consumer.
May I start selling products if I have submitted my Registration Application but have not received my sales tax license?
You are not required to wait for your sales tax license to arrive to begin selling items at retail. However, as soon as you begin selling items at retail, you are required to remit sales tax to the State of Michigan.
Once your application is processed, your sales tax license is available on MTO immediately with registration access.
When should I pay my sales tax with a Concessionaires Form and when should I register for sales tax with a Registration Form ?
If you make retail sales at only one or two events in Michigan per year, you may complete Form 5089, Concessionaire’s Sales Tax Return and Payment, or, if you prefer, you may apply for a sales tax license.
If you make retail sales at more than two events in Michigan per year, you must have a sales tax license.
I am a wholesaler. Do I need a sales tax license?
No, Michigan does not issue sale tax licenses to wholesalers. In order to claim an exemption, a wholesaler must provide the seller with a completed Form 3372, Michigan Sales and Use Tax Certificate of Exemption, and indicate that the purchase is for “Resale at Wholesale”.
How do I obtain a sales tax license?
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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Track Every Penny Literally
One of the best things you can do to stay on top of your sales tax obligations is to keep meticulous records, said Luca CM Melchionna, a managing member of Melchionna PLLC. A good accounting solution helps you track your invoices and sales so you know exactly where your sales come from.
“Be sure to work with an attorney and a CPA with experience in this area,” Melchionna said. “In many states, sales tax reporting obligations are recurring. It is important that small retailers maintain impeccable documentation at the time of each sale.”
Report And File Sales Tax
When they issued your sales tax permit, your state assigned you a sales tax filing frequency.
This means your sales tax due date will roll around either monthly, quarterly or annually
Keep in mind that every states sales tax due dates are slightly different.
Most states want to hear from you on the 20th day of the month after the taxable period, but others want to hear from you on the last day of the month, or the 15th, or the 23rd, etc.
When your due date rolls around, your job is to report how much sales tax youve collected in each state.
If the state just wanted to see one number, your job would be easy.
But to complicate matters, most states want to know how much sales tax you collected from buyers in each taxing jurisdiction.
This means figuring out how much sales tax you collected in each state, city, county and other special taxing jurisdiction in all of your nexus states.
This process becomes especially painful if you sell on multiple channels, and have to attempt to integrate more than one sales tax report.
Fortunately, we live in a time where ecommerce sales tax software automation technology exists to make this process simple.
TaxJar is one sales tax automation app you can use within the BigCommerce dashboard.
Once youve reported how much sales tax youve collected, your next step is to file your sales tax return and remit the sales tax youve collected from customers.
There are a couple of important considerations here:
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Creation Of Economic Nexus
This came about in June 2018, when the United States Supreme Court ruled in South Dakota v Wayfair that states can also require online sellers to collect sales tax based on the volume or value of transactions into a state, which create economic nexus.
One of the reasons behind the move to tax economic nexus is important in this case South Dakota does not impose income tax on its residents, which means it relies heavily on sales tax. As physical businesses lose more business to remote sellers, failure to tax these retailers results in a loss of tax revenue to the state.
In Wayfair vs.South Dakota, the state estimated that $50 million had been lost in sales tax revenue.
Automate Sales Tax With Taxjar
We created TaxJar because sales tax is a time-consuming, unprofitable hassle for online businesses.
To join more than 20,000 online businesses who are automating sales tax compliance with TaxJar, just sign up for a 30-day no-risk free trial at TaxJar.com. Its no risk as no credit card is required.
Once you sign up, heres what you can expect:
- TaxJar Reportswill create return-ready sales tax reports that you can file manually. Its the ideal solution for hands-on business owners who want to file sales tax returns without spending hours crunching numbers.
- TaxJar AutoFile will take sales tax automation a step farther and automatically file your sales tax returns for you. AutoFile fully automates sales tax returns so you can spend more time on the profitable aspects of your business, and no time on sales tax.
From calculations to filing, TaxJar provides award-winning support and simple pricing options for businesses of all sizes.
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When The Threshold Is Crossed
For example: the threshold in a given state is $200,000 in volume in the current year. Two months ago you sold $198,000 there. No nexus. Last month you sold $201,000. Nexus.
To remain compliant, register for sales tax collection now and begin collecting taxes going forward. You do not need to pay sales tax for last month because you had not previously met the requirement to begin collecting sales tax, and therefore you werent collecting any.
Sales Tax Responsibilities Of Marketplace Sellers
If you sell products online through a marketplace facilitator, you are considered a marketplace seller. As of October 1, 2019, marketplace sellers are no longer required to collect and remit state sales tax for products sold through a marketplace facilitator.
For more information, review the from the Colorado Department of Revenue. It contains information for both marketplace facilitators and marketplace sellers.
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States With Internet Sales Tax 2021
Internet sales tax is a tax on Internet-based services. For many years, states argued that they were losing money by not collecting sales tax on Internet sales. On June 21, 2018, the U.S. Supreme Court changed the rules for collecting sales tax by Internet-based retailers stating that individual states can require online sellers to collect state sales tax.
Any individual who sells products online should be aware of the different laws in different states. The provisions set by the states are called Remote Seller Nexus and vary between states. There are four different types of Nexus according to the Sales Tax Institute: Click-Through Nexus, Affiliate Nexus, Marketplace Nexus, and Economic Nexus.
About The Gst And Hst
You will be charging the Goods and Services Tax on any goods or services sold to Canadian customers and remitting this to the federal government. This applies only to Canadians, and not to customers in other countries.
There is an exception to this, however. If you are considered to be a small supplier, you will not be responsible for charging the GST. You will, however, continue to be responsible for provincial tax in all provinces save BC.
With 5 provinces charging the Harmonized Sales Tax, it is in your best interest to voluntarily register for the GST. Doing so will also allow you to claim Input Tax Credits on business-related goods and services that you purchase.
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File Your Sales Tax Return
Now comes the part where you turn in the sales tax youve collected from buyers to the state or states where you have sales tax nexus.
Most states make it fairly easy to file online. In fact, some states require that you file online or pay a penalty. Check with your individual state on when and how to file.
Dont think youre off the hook if you didnt collect any sales tax over this taxable period. Many states still require that you file what is know as a zero return even if you dont have any sales tax funds to remit to them. A zero return is a sales tax return that just tells the state that you didnt collect sales tax during that taxable period. They basically want you to check in and ensure them that youre still in business. If you forget to file a zero return, you can receive a penalty, just as if you forgot to file and pay.
Speaking of paying, it pays to file your sales tax returns on time. Many states realize that sales tax is a burden and will award merchants a sales tax discount for paying early or on time. Dont leave that money lying on the table.
What About The Pst
So, what happens when selling to a customer in BC, Manitoba, Saskatchewan, or Quebec? These provinces all have provincial sales tax, and so you should register for, collect, and remit provincial sales taxes as appropriate. Some provinces simply make the request that this be done, but others have created legislation to this effect.
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And Why Do Online Sellers Need To Deal With It Anyway
Forty-five U.S. states and Washington D.C. all have a sales tax.
Many states allow local areas to require a sales tax, too.
The U.S. states that have a local sales tax
States and localities use sales tax to pay for budget items like schools, roads and public safety. Sales tax is a consumption tax because its only charged when a buyer buys goods or services.
And its a pass-through tax, because even though a merchant charges sales tax to her buyer, she doesnt get to keep it. It passes through, because she remits it to the state government.
Sales tax is governed at the state level, which means each state gets to make its own rules and laws within the framework of the U.S. Constitution when it comes to administering sales tax.
Some aspects of sales tax that can vary from state to state include:
- Which products and services are taxable
- How much sales tax is charged
- When and how often online sellers are required to file sales tax returns
- Dates sales tax returns are due
Sales tax fact: You can easily remember the five states with no sales tax by their acronym NOMAD: New Hampshire, Oregon, Montana, Alaska and Delaware.
Key points to remember
- Sales tax is governed at the state level
- 45 states and D.C. have a sales tax
- Every states sales tax laws and rules are different
What Is A Sales Tax Nexus And How Does It Affect E
A sales tax nexus is what determines the relationship between your business and the state, or taxing jurisdiction. For brick-and-mortar stores, determining this is typically easy: the physical presence of the store in that state established the relationship between the taxing jurisdiction and the business.
However, the Supreme Court ruling in South Dakota v. Wayfair Inc. changed how e-commerce businesses charge and collect sales tax. The decision, made in June 2018, enabled states to charge sales tax to out-of-state sellers, which means you don’t need a physical presence in a state to pay sales tax. In South Dakota, the state can charge sales tax to any business that delivers more than $100,000 of goods or services or totals 200 transactions on an annual basis.
Now, with goods theoretically available to all customers in all 50 states, e-commerce businesses may not know how much sales tax to charge, if any.
“This is a major change in the sales tax world,” said Judah Fish, CEO of Saltwater Tax Group.
If your small business mails three $15 products to a customer across the country, you don’t need to worry much about these sales tax laws. It’s highly unlikely any state will create a law where purchases that small result in paying a sales tax, but businesses selling larger amounts need to take note.
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What International Sellers Need To Know
Even though you may live outside the United States, if you sell on FBA or have established any other type of sales tax nexus in the United States , then you must comply by the sales tax laws of the state where you have nexus.
One common misconception about US sales tax is that if you live in a country with a tax treaty with the US, then you as an ecommerce seller do not have to charge sales tax to US customers.
Below Economic Nexus Thresholds
If youre collecting sales tax in your home state, but youre sure you havent hit economic nexus anywhere else, youre in a great position to set up systems before you need to start collecting.
To do this, make sure you have a system in place to track sales. During times of growth, periodically review your sales by state, as outlined above . Most platforms have some way of downloading sales data, and knowing a few basic spreadsheet formulas can save you tons of time adding them up.
Starting to watch and listen for companies and software solutions will give you a head start when you do reach that point of needing them. If you know other ecommerce sellers, ask for reviews and recommendations on solutions to use.
Prepare for a Nexus Study
As your business grows, be prepared to commission a professional nexus study which will tell you where youve hit nexus and need to register.
Sales Tax On A Mixed Shipment
You sell a $50 taxable coffee table book and a $50 non-taxable pair of blue jeans to a customer and ship them in the same shipment, charging $10 for shipping.
In this case, you could weigh both items and figure out how much of that $10 was used to ship the weight of each.
Or you could simply consider the price of each item and only charge sales tax on the $5 you charged to ship the taxable coffee table book.
Fortunately, BigCommerce and other online shopping carts and marketplaces allow you to elect whether to collect sales tax on shipping charges in an individual state.
I hope this post has demystified when online sellers are required to charge sales tax on shipping charges.
If you have questions or something to say, start the conversation in the comments.
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