You paid sales tax on sales that are made within your state; the state in which your business is located or where it is a nexus. For example, Amazon has facilities in most states and pays taxes to different states based on the nexus these facilities created. As a small business, most likely you have one location, and you will pay taxes in the state the business is located.
Registering and Collecting Sales Tax:
After you’ve determined that you have nexus in a state and have a taxable product, the process to start collecting sales tax is surprisingly straightforward. Here are three simple steps for complying with US sales tax.
- Register for a sales tax permit in that state. You must register for each state’s tax system individually where you have nexus.
- Charge sales tax to customers in that state. If your sales are online through a service like Shopify, for example there are plugins or apps that are created specifically for this purpose. The amount of sales tax you charge includes the overall state tax rate, plus any county or district taxes that apply. Not every state has local-level taxes, though. Typically, the tax rate levied will be based on where the customer is located. This is called a destination-based tax. Several states have origin-based taxes, meaning you charge tax according to wherever your business is based.
- File sales tax returns in that state. When you register, each state will assign you a filing frequency. It could be once a month, once a quarter, or once a year. Be sure to note your deadlines and pay on time to avoid penalties. Again, check the individual states’ official websites for specific information on how to file.
When we talked about registering your business with the authorities it was previously explained that if you conduct business, have an office, have an employee, a warehouse, or any kind of physical presence in another state, then you’ll have to register your business as an entity in the state or states in which you have a physical presence. This is called having a physical presence nexus.
If you have nexus in a certain state, you are responsible for collecting sales tax there. If you sell to customers in another state, you do not necessarily need to collect sales tax because you do not have nexus. However, there are other ways you can have nexus in a state, such as making sales to customers who live in other states, beyond a minimum threshold.
We’ll go through different types of nexuses below to help you determine what may apply to your business.
Sales Tax Nexus:
- Economic Nexus is the economy activity
- Physical Nexus is the people (contractors) and property
- You are a marketplace
Online Sales Tax is a pain based on the following:
- States have different rules and regulations. For example, an item may have sales tax in one state, but they do not have the same tax regulation in another state. The structure of the sales tax is different from each state, and this makes sales tax complicated.
- Sales tax rules and rates are changing constantly.
- Time Consuming
You want to focus more on your business. A sales tax app is the solution; it will help you to save time and concentrate in your business.
Why to use a Sales Tax App:
- Accurate rates and collections
- Adjust to changing rules and regulations
- Timely filing
- Integration with sales channels and accounting software
Don’t stress out about sales tax. Powerhouse Accounting Services can help you out with your sales tax.