The New Year is a perfect time to evaluate the old and implement the new. For business owners, this means stepping on the gas on what has worked in the past, and improving those business processes that may be holding you back.
One business process that can get out of hand fast is dealing with sales tax. This post will help you give your business a sales tax inspection, and hopefully make sales tax a little less taxing for 2017.
Step #1: Make Sure You’re Still Collecting Sales Tax from the Right Customers
“Sales tax nexus” is just a fancy way of saying “significant presence” in a state. If you have sales tax nexus in a state, then that state requires you to collect sales tax from customers in that state on any of the taxable products that you sell there.
As your business grows and you introduce new channels, partners and logistics, you may find that you either have sales tax nexus in new states, or you no longer have sales tax nexus in some states.
Nexus is created when you have:
- A location – an office, warehouse, store, or other physical place of business
- Personnel – an employee, contractor, salesperson, installer or other person doing work for your business
- Inventory – Most states consider storing inventory in the state to cause nexus even if you have no other place of business or personnel
- Affiliates – Someone who advertises your products in exchange for a cut of the profits creates nexus in many states
- A drop shipping relationship – If you have a 3rd party ship to your buyers, you may create nexus
- Selling products at a tradeshow or other event – Some states consider you to have nexus even if you only sell there temporarily
To help you determine whether or not your business activities give you sales tax nexus, you can find out what every state’s laws have to say about nexus here.
On the other hand, maybe you no longer have nexus in a state. If that’s the case, you can cancel your sales tax permit in that state. This is often as easy as marking “final return” on your last sales tax return.
Step #2: Ensure Your Sales Tax Permits are Up-to-Date
If you find that you have sales tax nexus in a new state, your next step is to register for a sales tax permit in that state.
You also want to ensure that your sales tax permits are up to date. If you moved, or changed your business entity (ex: from sole-proprietor to LLC, or LLC to S-Corp) you’ll need to convey that information to the state so they can update your seller’s permit.
Step #3: Review Your Sales Tax Due Dates and Filing Frequencies
One thing states like to do at the beginning of the year is adjust your sales tax filing frequency. While they don’t do this every year, many states will evaluate your sales volume from the previous year and determine if they want you to file more or less frequently.
Be on the lookout from a letter from the state adjusting your filing frequency to monthly, quarterly or annually. The rule of thumb about filing frequency is that the more sales tax you make in a state, the more often the state wants you to file a sales tax return.
You should also ensure that you’re aware of your sales tax filing due dates. While most states’ sales tax filing due dates fall on the 20th, there are many exceptions to that rule. If you are filing in a new state, or filing sales tax at a new frequency, be sure to double check your sales tax filing due dates.
Step #4: Automate Your Sales Tax Compliance
Look back at the year. How much time did you spend reporting how much sales tax you collected, and filing sales tax returns? If this time spent on burdensome administrative duties cut into the more profitable things you could have been doing, it’s time to automate.
Sales tax automation will connect with the online channels on which you sell and create return-ready sales tax reports for all of your nexus states. You can use these reports to file your sales tax returns in just a few minutes. Or, if you’d rather never look at a sales tax return again, you can AutoFile your sales tax returns!
If sales tax was too much hassle last year, look into automation and take sales tax off your plate.
We hope this review has helped you get a handle on sales tax. For more on sales tax, check out our Sales Tax Guide for Amazon FBA Sellers or ask a question in our Sales Tax for eCommerce Sellers Facebook group.
About the Author
Mark Faggiano is the Founder and CEO of TaxJar, a service that makes sales tax reporting and filing simple for more than 5,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!