5 Things to Know About Sales Tax Filing for Your Small Business

Starting a new business is always a labor of love! There are so many things to learn, to do--and to re-learn as laws change and evolve to meet the needs of our ever-changing economy and global marketplaces! If you sell taxable goods and services online, you know that having a great product is only a small part of your business activities! As we head into the early days of tax season, it is good to take a quick look at a tax filing that some business owners may find confusing: collecting & submitting sales tax payments. It is essential to understand sales tax filing as it can be quite costly if your business doesn’t correctly register and file sales taxes as required. What are some things you should know about sales tax filing for your small business?


The individual States Set Their Own Sales Tax Rules. Most states have sales tax collection. Sales tax collection is coordinated by your state--with your state’s own set of rules and obligations. The requirements in Ohio may be very different than requirements in Alabama. Are you an online seller required to file sales tax returns in multiple states? Your responsibility is to ensure that you are properly collecting sales tax on required sales and adequately submitting your sales tax reports/returns with the appropriate payment to every state required..

Your Nexus Determines Your Filing. Nexus was a new word to me--and then, I learned that, as will many things related to sales tax, nexus rules become more complicated from state to state! A nexus is the amount of presence that your business has in a given city/state/location. Most states that collect sales tax have some sort of tax collection for those physically selling items in a specific city or state. Many states take the nexus issue a bit further with economic nexus rules that require those selling online to file sales tax if certain economic nexus situations exist.

Brick & Mortar vs. Online Sales: Sales Tax Rules Vary. If you operate a physical store or shop location with sales--your state sales tax filing rules are pretty simple. You collect according to your state and local tax rates and file according to your state and local requirements. If you sell online--your sales tax collection and reporting may become quite complicated if you have a nexus in multiple states or tax jurisdictions. Take the time to get your sales tax collection system set up accurately from the start to save yourself future headaches! Whether working with an accountant--or through your tax authorities--seek advice in setting up your online shopping cart for proper tax collection or finding a suitable payment processor for your business needs.

Your Item May Not Be Taxable In Some States. To further complicate already complicated tax situations for online sellers--some states have different rules regarding taxable items. For example, if you sell books and textbooks, your textbook sales may be exempt from filing in some states but not others, while your book sales may still have different rules! If you sell multiple items in multiple states, be sure to do the legwork and understand any exemptions or variations to the laws not to pay undue taxes or fail to pay required sales tax for a specific item!

File as Required--When Required--Even if you Don’t Owe Anything. Suppose you have a physical presence or a nexus in a state or have a sales tax permit in a given state. In that case, you will likely be required to file a sales tax return even if you didn’t collect any sales tax within the reporting period. So it is vital to work closely with your accountant and/or your state tax authority to ensure that your  business is properly registered and reporting as required to avoid penalties and fines.

Collecting and reporting sales tax for an online business is a bit complicated. Luckily there are resources available to help you set up your sales tax collection process and stay compliant with reporting requirements. Staying on top of the sales tax filing tasks will make your life much easier as you continue to operate your business.

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