January is a busy month for sellers for many reasons, but sales tax compliance is often delayed until the last minute. Whether you file your state sales taxes monthly, quarterly, or annually, you will have a sales tax return due in January.
We don’t you to get snowed in by this “Sales Tax Perfect Storm,” and to help out we’ve prepared a list of our best tips to get you ready before the storm hits.
Determine if Your Number of States with Nexus Has Changed
Sales tax nexus is defined as having “significant presence” in a state and means you’ll be required to collect and remit sales taxes to that state. You’ll always have nexus in your home state, but you can also have nexus in other states if they contain remote workers, warehouses with your products, or if you sell at events on those states. Here’s a guide to help determine whether or not you have nexus in a given state.
If you’ve found that you have nexus in an additional state, you’ll want to register for a sales tax permit as soon as you can—you won’t be able to collect sales taxes until you receive that certification.
If you find you no longer have nexus in a state, you’ll need to contact that state’s department of revenue to report you’re ending your business relationship with that state. Keep in mind some states have “trailing nexus” where you must continue filing for a period of time after your nexus ends. As always, it’s best practice to check each state’s regulation to make sure you have current and correct information.
Ensure You’re Collecting Sales Tax on All Sales Platforms
Many sellers have a single major platform like Amazon, but also sell on other platforms or sales channels like Etsy, eBay, or their own shopping cart. One of the biggest mistakes we see at TaxJar is when a business forgets to collect sales tax on all of their sales channels.
Every once in a while, you should go through the sales tax collection settings for each of your platforms to make sure you’re collecting from all of the states where you have nexus.
Check Current Sales Tax Rates and Due Dates
You should also check the sales tax collection settings to make sure each platform is collecting the right amount of sales tax–the rates can change at any time, but usually happen in January, June, or October. You can always check the rates by entering the ZIP code into a Sales Tax Calculator.
Each of the 45 states (plus the District of Columbia) that collects sales tax have slightly different due dates. A lot of states use the 20th, but always check the dates for your state to make sure you have the right date.
Calculate How Much Sales Tax You’ve Collected
Unfortunately, this step is the biggest headache in the sales tax compliance process. It’s normal to procrastinate, but like flu shots and oil changes, it’s better to get it done quickly and on-time rather than waiting until calamity strikes.
You’ll need to go through each and every one of your sales channels and figure out how much sales tax you’ve collected from customers in each state for the filing period.
You’ll then need to break down those amounts, not just state-by-state, but also by county, city, and by any other special taxing district that may apply. This annoyance is the reason why we recommend having a sales tax automation solution to let a robot handle your bookkeeping automatically.
Figure Out Filing Options for Each State
These days, most states prefer that you file online using their sales tax portals–you’ll fill out forms on their site and then create an account on whatever payment processing system they use to remit your collected taxes to the state.
There are a few states that still accept sales tax returns by mail, but states are steadily discontinuing that option. You can always contact each state’s department of revenue to check.
If you’d rather not deal with forms or navigating payment gateways, you can have TaxJar do all of that for you using the AutoFile service, which can even take advantage of discounts for filing sales tax returns on time that some states offer.
Always File a Return
Even if you don’t owe a particular state any tax, you’ll want to make sure you file for every state where you’re registered to collect sales tax. If you don’t, you could be subject to fines or have your sales tax permit revoked. Ouch.
Get Ready for Next Year’s “Perfect Storm”
I know it’s easy to forget about sales tax compliance as soon as your last return in January is filed, but a sales tax compliance routine is a great habit to get into. By taking a few minutes every so often to check your sales platform settings are working properly and think about if you’ve gained sales tax nexus in a new state, you’ll be ahead of the curve and ready to weather next year’s “Perfect Storm.”
If you still have questions or if you’d like to do a deep dive into sales tax, check out our Sales Tax 101 for Online Sellers Guide.
TaxJar is a service that makes sales tax reporting and filing simple for more than 10,000 online sellers. Try a 30-day-free trial of TaxJar today and eliminate sales tax compliance headaches from your life!