As a business owner, it’s important to understand sales tax and the requirements behind setting up sales tax for your customers or clients. But where to start? What is important and what are you legally required to instigate on your products or services?
As business sales tax specialists, we aim to provide as much information to our clients as possible, giving details about what to implement as well as what to expect. However, not all situations are the same and it’s important to understand the differences between your business sales tax requirements and someone else’s.
How to Know if You Need to Collect Sales Tax
There are certain situations where small business owners may NOT need to collect sales tax, but the majority do. Understanding if you are required to collect a sales tax will help you to avoid any penalties or issues with your business.
The reasons below can help you determine if you should collect sales tax:
- If you are one of the 45 states that requires the collection of sales tax – Did you know that not all states in the United States have sales tax on goods and services? It’s true! And you may reside in a state that does not require it. Each state has different exemptions for sales tax depending on factors such as point of sale, type of product, and more. Verify through your local or state tax office whether or not you are required to have a sales tax permit or a license to sell. Then, make sure you are charging an accurate local rate for your specific area in addition to the state requirements.
- If you are a wholesaler selling to retailers – There are many businesses who supply goods to other businesses for resale. If you are one of those businesses (a retailer), you need to have a valid resale certificate. If you are the wholesaler, you need to be verifying your retailers certificate’s for adequate sales tax information. Majority of states provide helpful resale certificate information on their Department of Revenue websites.
- If the product is taxable – Knowing whether or not your product is taxable depends on whether your state collects sales taxes based on origin, products versus services, and the states requirements for tax. Answers to these questions can be obtained through your local tax office.
- Nexus requirements – Sales tax nexus, which may sound advanced or specific to certain businesses, is actually the business connection between a seller and a state. It’s important to understand if your small business is obligated to pay sales tax per nexus requirements. Each state has its own rules for nexus, which take into account things like whether you have a physical presence there, how much business you do, and other factors that determine if you’re subject to their tax rules. Verifying with your local tax office or a specialist will be your best bet here.
Best Resources for Sales Tax Information
It’s obvious that you will need to obtain more information about your sales tax obligations depending on where you live and do business. We have used countless resources to support our clients in obtaining this information, and have found two that consistently provide us with the most accurate details.
- TaxJar.com – Tax Jar is an incredibly helpful resource for helping businesses understand sales tax compliance. They provide information on “Sales Tax Compliance for Modern Commerce” which applies to the majority of our clients today! They are trusted by over 200,000 high growth businesses, which is important to note because that is a lot of businesses that need accurate, detailed information for their sales tax implementation.
Outside of general education and information to support small businesses, TaxJar has a helpful platform to help business owners reduce errors and missed deadlines when it comes to taxes. They operate with multichannel sellers and integrate with your ERP platform.
Consider TaxJar as a trusted resource to get information your business needs for sales tax and more!
- Avalara.com – Avalara is “committed to making tax compliance less taxing,” and isn’t that what we all want? Through helpful education and digital support to your tax preparations and questions, Avalara uses a tax compliance software solution to automate processes and reduce errors. We think Avalara’s products are excellent!
With over 41,000 customers across 95 countries, Avalara helps to provide the most accurate information to businesses needing accuracy 100% of the time. They are a trusted resource for business owners, accountants, resellers, technology partners, and developers. And we rely on Avalara to get our clients the correct information they need.
We recommend browsing the many helpful blog posts and free resources that both TaxJar and Avalara have to offer!
Using Your Local Tax Administration Office
We live in a digital age where so much information can be found online. This is an incredible blessing when a business owner or tax preparer needs accurate information quickly. However, sometimes the answer you are looking for can only be found through contacting your state’s tax administration office.
Uniquely, every state has different names for the office that manages sales tax. Some call it the Tax & Fee Administration, the Department of Revenue, or even the State Tax Commission. In short, these offices are the governing body for the sales tax in your state. Working with and contacting this organized department is a great way to get specific tax information for your business straight from the horse’s mouth.
Depending on what state you live in, calling in can be incredibly helpful. For example, 1428 Financial has several clients in California who are required to maintain sales tax compliance. When calling the California Department of Tax Administration, they have always been extremely helpful in providing information on the taxability of various goods and services as well as answering complex questions.
By finding out what your state’s governing body’s for sales tax and going directly to them, you can typically save yourself a lot of time and energy as you will get the most accurate information.
Sales Tax Support
Looking for additional support for navigating sales tax for your business? We would be honored to hold your hand through this process and help provide you with the most accurate information possible. Reach out to discuss your needs and our team will get back to you quickly!
Sales tax doesn’t have to be an overwhelming or complicated process. With the right resources and assistance, your business will have no issues with sales tax compliance!
For more helpful tax information and guidance, check out these posts:
- Common Bookkeeping Mistakes and How to Avoid Them!
- Should I Hire a Bookkeeper or an Accountant?
- We’re Putting This Finance Myth to Sleep
The content in this blog post is provided for general informational purposes only and should not be considered professional tax or legal advice. The author is not a Certified Public Accountant, and no assurances can be made regarding the outcomes or consequences of tax returns, IRS actions, or any financial decisions based on this information. Readers are strongly advised to consult with a qualified tax professional or legal advisor for personalized guidance specific to their individual circumstances. The author expressly disclaims any liability for decisions made based on the information presented in this blog post.
