Should I Be Collecting Sales Tax?
The ever changing sales tax arena can be intimidating and confusing, but it doesn't have to be.
If you're an ecommerce business or really any business that sells online you're probably wondering how you've probably heard about South Dakota v. Wayfair, Inc, and if you haven't we're happy to fill you in. The case involves a Supreme Court ruling that has changed the sales tax landscape for businesses selling out of state. Before the ruling the federal government regulated sales tax for out of state sales and business owners only had to collect for sales within their state. However the ruling has now allowed each state to set their own sales tax laws. This means that a state may decide to require all out of state sellers to remit sales tax, for their state, for counties, and for cities. So now business owners who are doing business in multiple states have to try to tackle organizing the sheer number of tax rates you may now have to track. We're going to start with the basics and give you some tools to make the process a little less painful (although we're not guaranteeing pain free).
Determine Where You Have Nexus
This is your first step, you need to determine in what state you have a nexus. The criteria for a nexus depends on each state, you may need a physical nexus or you may need an economic nexus to qualify for sales tax. Since each state sets it's own regulations and they are changing fairly rapidly with the new ruling being in it's infancy you're going to want to check if you have a nexus in each state on a regular basis. So how can you do this? You have a few options, you can compile a list of state tax authority websites and check those on a regular basis. You can also check out this amazing (and free) tool from Avalara which helps you determine where you have nexus.
Once you determine what states you have nexus in you need to determine what counties, cities, etc you have nexus in. Again Avalara has an awesome tool on their website to help you with this.
Track Your Sales
Next you need to track your sales tax for each area. There are a few different ways you can do this depending on your set up. For example, if you are using a tool like Shopify you can have them collect the sales tax for you, you just need to set where you are collecting it from and confirm the tax rates are correct. If you're using a less robust platform when it comes to sales tax there are other tools you can use such as Avalara or TaxJar. If you are unsure if you selling platform accommodates sales tax reach out to them.
Remit Your Sales Tax
Each state, county, etc has different frequencies for paying sales tax and many of them are dependent on the amount of sales tax you collect. Make sure you have a schedule set up for when you should be remitting sales tax to each area and a way to track when you reach a threshold that will require you to remit sales tax. Again, many selling platforms and accounting programs have tools that help you with this process.
Sales tax does not have to be overwhelming despite the complications. Break it down into steps and if you're unable to devote the appropriate time to it reach out to find a service that can help you. Looking for information on how to record sales tax? Take a look at this blog post.
Honey Hive offers a comprehensive sales tax solution for our ecommerce clients, for more information contact us for a quote.